Yakult HonshaLtd (TSE:2267) Has Some Way To Go To Become A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Yakult HonshaLtd (TSE:2267) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Yakult HonshaLtd is:

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

0.084 = JP¥62b ÷ (JP¥883b - JP¥144b) (Based on the trailing twelve months to September 2024).

So, Yakult HonshaLtd has an ROCE of 8.4%. On its own, that's a low figure but it's around the 7.2% average generated by the Food industry.

See our latest analysis for Yakult HonshaLtd

Above you can see how the current ROCE for Yakult HonshaLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Yakult HonshaLtd .

What Can We Tell From Yakult HonshaLtd's ROCE Trend?

In terms of Yakult HonshaLtd's historical ROCE trend, it doesn't exactly demand attention. The company has employed 46% more capital in the last five years, and the returns on that capital have remained stable at 8.4%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Yakult HonshaLtd's ROCE

As we've seen above, Yakult HonshaLtd's returns on capital haven't increased but it is reinvesting in the business. And investors may be recognizing these trends since the stock has only returned a total of 1.1% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Yakult HonshaLtd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 2267 on our platform quite valuable.

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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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.