Does KOIKE-YA (TYO:2226) Have The Makings Of A Multi-Bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 KOIKE-YA (TYO:2226) so let's look a bit deeper.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for KOIKE-YA, this is the formula:

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

0.11 = JP¥1.9b ÷ (JP¥28b - JP¥11b) (Based on the trailing twelve months to December 2020).

Therefore, KOIKE-YA has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.1% it's much better.

See our latest analysis for KOIKE-YA

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 KOIKE-YA's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

KOIKE-YA is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 23%. So we're very much inspired by what we're seeing at KOIKE-YA thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, KOIKE-YA has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 75% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

KOIKE-YA does have some risks though, and we've spotted 1 warning sign for KOIKE-YA that you might be interested in.

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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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