Is TriIs (TYO:4840) A Future Multi-bagger?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, TriIs (TYO:4840) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for TriIs, this is the formula:

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

0.012 = JP¥72m ÷ (JP¥6.6b - JP¥429m) (Based on the trailing twelve months to September 2020).

Thus, TriIs has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 9.9%.

View our latest analysis for TriIs

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

What Can We Tell From TriIs' ROCE Trend?

We're delighted to see that TriIs is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 1.2% on its capital. While returns have increased, the amount of capital employed by TriIs has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

The Bottom Line On TriIs' ROCE

To bring it all together, TriIs has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 31% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for TriIs (of which 1 is concerning!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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