Kanamic NetworkLTD (TSE:3939) Looks To Prolong Its Impressive Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Kanamic NetworkLTD's (TSE:3939) ROCE trend, we were very happy with what we saw.

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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. The formula for this calculation on Kanamic NetworkLTD is:

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

0.33 = JP¥1.5b ÷ (JP¥5.9b - JP¥1.4b) (Based on the trailing twelve months to December 2024).

So, Kanamic NetworkLTD has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Healthcare Services industry average of 17%.

See our latest analysis for Kanamic NetworkLTD

In the above chart we have measured Kanamic NetworkLTD's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Kanamic NetworkLTD .

What Does the ROCE Trend For Kanamic NetworkLTD Tell Us?

We'd be pretty happy with returns on capital like Kanamic NetworkLTD. Over the past four years, ROCE has remained relatively flat at around 33% and the business has deployed 129% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

In Conclusion...

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. Yet over the last five years the stock has declined 33%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

While Kanamic NetworkLTD looks impressive, no company is worth an infinite price. The intrinsic value infographic for 3939 helps visualize whether it is currently trading for a fair price.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.