Shareholders Are Optimistic That eWeLLLtd (TSE:5038) Will Multiply In Value

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at eWeLLLtd (TSE:5038), we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on eWeLLLtd is:

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

0.48 = JP¥987m ÷ (JP¥2.6b - JP¥513m) (Based on the trailing twelve months to June 2024).

Therefore, eWeLLLtd has an ROCE of 48%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for eWeLLLtd

In the above chart we have measured eWeLLLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering eWeLLLtd for free.

What The Trend Of ROCE Can Tell Us

eWeLLLtd deserves to be commended in regards to it's returns. Over the past three years, ROCE has remained relatively flat at around 48% and the business has deployed 302% 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 eWeLLLtd can keep this up, we'd be very optimistic about its future.

One more thing to note, even though ROCE has remained relatively flat over the last three years, the reduction in current liabilities to 20% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line

In short, we'd argue eWeLLLtd has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. In light of this, the stock has only gained 3.4% over the last year for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

On a final note, we found 3 warning signs for eWeLLLtd (1 can't be ignored) you should be aware of.

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.