Returns On Capital Signal Tricky Times Ahead For Decollte Holdings (TSE:7372)

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Decollte Holdings (TSE:7372), it didn't seem to tick all of these boxes.

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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 Decollte Holdings, this is the formula:

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

0.046 = JP¥493m ÷ (JP¥13b - JP¥2.4b) (Based on the trailing twelve months to June 2025).

Thus, Decollte Holdings has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Consumer Services industry average of 9.7%.

View our latest analysis for Decollte Holdings

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 Decollte Holdings has performed in the past in other metrics, you can view this free graph of Decollte Holdings' past earnings, revenue and cash flow.

So How Is Decollte Holdings' ROCE Trending?

When we looked at the ROCE trend at Decollte Holdings, we didn't gain much confidence. Around five years ago the returns on capital were 6.1%, but since then they've fallen to 4.6%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Decollte Holdings' ROCE

In summary, Decollte Holdings is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last three years, the stock has given away 65% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Decollte Holdings does have some risks, we noticed 4 warning signs (and 2 which can't be ignored) we think you should know about.

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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.