The Return Trends At TRE Holdings (TSE:9247) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, TRE Holdings (TSE:9247) looks quite promising in regards to its trends of return on capital.

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What Is Return On Capital Employed (ROCE)?

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 TRE Holdings:

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

0.15 = JP¥18b ÷ (JP¥161b - JP¥40b) (Based on the trailing twelve months to December 2024).

Thus, TRE Holdings has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 9.9% it's much better.

View our latest analysis for TRE Holdings

Above you can see how the current ROCE for TRE Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for TRE Holdings .

What Does the ROCE Trend For TRE Holdings Tell Us?

TRE Holdings has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last two years, the ROCE has climbed 94% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

As discussed above, TRE Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Given the stock has declined 31% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

TRE Holdings does have some risks, we noticed 4 warning signs (and 2 which are potentially serious) we think you should know about.

While TRE Holdings 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.