NittoseikoLtd (TSE:5957) Has More To Do To Multiply In Value Going Forward

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating NittoseikoLtd (TSE:5957), we don't think it's current trends fit the mold of a multi-bagger.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for NittoseikoLtd, this is the formula:

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

0.078 = JP¥3.3b ÷ (JP¥56b - JP¥13b) (Based on the trailing twelve months to December 2024).

Thus, NittoseikoLtd has an ROCE of 7.8%. Even though it's in line with the industry average of 7.8%, it's still a low return by itself.

See our latest analysis for NittoseikoLtd

Above you can see how the current ROCE for NittoseikoLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering NittoseikoLtd for free.

What Can We Tell From NittoseikoLtd's ROCE Trend?

There are better returns on capital out there than what we're seeing at NittoseikoLtd. The company has consistently earned 7.8% for the last five years, and the capital employed within the business has risen 25% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In conclusion, NittoseikoLtd has been investing more capital into the business, but returns on that capital haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 24% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to continue researching NittoseikoLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

While NittoseikoLtd 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.