Harima B.Stem (TSE:9780) 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. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Harima B.Stem (TSE:9780) looks quite promising in regards to its trends of return on capital.

What Is 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 Harima B.Stem, this is the formula:

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

0.10 = JP¥965m ÷ (JP¥14b - JP¥4.7b) (Based on the trailing twelve months to March 2024).

Therefore, Harima B.Stem has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Commercial Services industry average of 9.2%.

View our latest analysis for Harima B.Stem

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Harima B.Stem has performed in the past in other metrics, you can view this free graph of Harima B.Stem's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Harima B.Stem is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 46%. So we're very much inspired by what we're seeing at Harima B.Stem thanks to its ability to profitably reinvest capital.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Harima B.Stem has. Since the stock has returned a staggering 135% to shareholders over the last five 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 Harima B.Stem can keep these trends up, it could have a bright future ahead.

Harima B.Stem does have some risks though, and we've spotted 1 warning sign for Harima B.Stem that you might be interested in.

While Harima B.Stem 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.

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