We Like These Underlying Return On Capital Trends At Mammy Mart (TYO:9823)

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Mammy Mart (TYO:9823) so let's look a bit deeper.

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

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. The formula for this calculation on Mammy Mart is:

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

0.15 = JP¥5.8b ÷ (JP¥62b - JP¥24b) (Based on the trailing twelve months to December 2020).

So, Mammy Mart has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Consumer Retailing industry average of 8.7% it's much better.

View our latest analysis for Mammy Mart

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mammy Mart's ROCE against it's prior returns. If you're interested in investigating Mammy Mart's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Mammy Mart Tell Us?

The trends we've noticed at Mammy Mart are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 15%. The amount of capital employed has increased too, by 21%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

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 Mammy Mart has. Since the stock has only returned 39% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

On a separate note, we've found 1 warning sign for Mammy Mart you'll probably want to know about.

While Mammy Mart 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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