Return Trends At Hoshizaki (TSE:6465) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. 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. That's why when we briefly looked at Hoshizaki's (TSE:6465) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Hoshizaki:

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

0.13 = JP¥51b ÷ (JP¥514b - JP¥126b) (Based on the trailing twelve months to September 2024).

So, Hoshizaki has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 8.1% it's much better.

See our latest analysis for Hoshizaki

Above you can see how the current ROCE for Hoshizaki 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 Hoshizaki for free.

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 50% in that time. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

The main thing to remember is that Hoshizaki has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 25% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Hoshizaki is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you're still interested in Hoshizaki it's worth checking out our FREE intrinsic value approximation for 6465 to see if it's trading at an attractive price in other respects.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.