Should We Be Excited About The Trends Of Returns At Arigatou Services Company (TYO:3177)?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Arigatou Services Company (TYO:3177), we don't think it's current trends fit the mold of a multi-bagger.

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 Arigatou Services Company, this is the formula:

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

0.032 = JP¥130m ÷ (JP¥5.0b - JP¥917m) (Based on the trailing twelve months to November 2020).

Therefore, Arigatou Services Company has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 7.0%.

Check out our latest analysis for Arigatou Services Company

Historical performance is a great place to start when researching a stock so above you can see the gauge for Arigatou Services Company's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Arigatou Services Company, check out these free graphs here.

So How Is Arigatou Services Company's ROCE Trending?

There hasn't been much to report for Arigatou Services Company's returns and its level of capital employed because both metrics have been steady for the past . Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Arigatou Services Company to be a multi-bagger going forward.

What We Can Learn From Arigatou Services Company's ROCE

We can conclude that in regards to Arigatou Services Company's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 15% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Arigatou Services Company does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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