AINAVO HOLDINGSLtd (TYO:7539) Has Some Way To Go To Become A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating AINAVO HOLDINGSLtd (TYO:7539), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on AINAVO HOLDINGSLtd is:

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

0.084 = JP¥1.9b ÷ (JP¥36b - JP¥13b) (Based on the trailing twelve months to December 2020).

Thus, AINAVO HOLDINGSLtd has an ROCE of 8.4%. Even though it's in line with the industry average of 8.4%, it's still a low return by itself.

See our latest analysis for AINAVO HOLDINGSLtd

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're interested in investigating AINAVO HOLDINGSLtd's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is AINAVO HOLDINGSLtd's ROCE Trending?

In terms of AINAVO HOLDINGSLtd's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 8.4% for the last five years, and the capital employed within the business has risen 27% 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.

What We Can Learn From AINAVO HOLDINGSLtd's ROCE

As we've seen above, AINAVO HOLDINGSLtd's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 77% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

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

While AINAVO HOLDINGSLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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