KPI Green Energy (NSE:KPIGREEN) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in KPI Green Energy's (NSE:KPIGREEN) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for KPI Green Energy, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.18 = ₹4.4b ÷ (₹28b - ₹3.7b) (Based on the trailing twelve months to December 2024).

Thus, KPI Green Energy has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Renewable Energy industry average of 6.1% it's much better.

Check out our latest analysis for KPI Green Energy

Historical performance is a great place to start when researching a stock so above you can see the gauge for KPI Green Energy's ROCE against it's prior returns. If you'd like to look at how KPI Green Energy has performed in the past in other metrics, you can view this free graph of KPI Green Energy's past earnings, revenue and cash flow .

How Are Returns Trending?

We like the trends that we're seeing from KPI Green Energy. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The amount of capital employed has increased too, by 963%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

In summary, it's great to see that KPI Green Energy can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 565% to shareholders over the last three years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if KPI Green Energy can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for KPIGREEN on our platform that is definitely worth checking out.

While KPI Green Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.