NissouLtd (TSE:1444) Has More To Do To Multiply In Value Going Forward

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. 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 NissouLtd (TSE:1444), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for NissouLtd, this is the formula:

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

0.094 = JP¥149m ÷ (JP¥2.5b - JP¥909m) (Based on the trailing twelve months to July 2023).

Therefore, NissouLtd has an ROCE of 9.4%. In absolute terms, that's a low return, but it's much better than the Consumer Durables industry average of 6.6%.

Check out our latest analysis for NissouLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for NissouLtd's ROCE against it's prior returns. If you'd like to look at how NissouLtd has performed in the past in other metrics, you can view this free graph of NissouLtd's past earnings, revenue and cash flow.

What Can We Tell From NissouLtd's ROCE Trend?

Over the past , NissouLtd's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at NissouLtd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

In a nutshell, NissouLtd has been trudging along with the same returns from the same amount of capital over the last . Unsurprisingly, the stock has only gained 5.2% over the last three years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a separate note, we've found 2 warning signs for NissouLtd you'll probably want to know about.

While NissouLtd 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.

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.

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