The Trends At AFC-HD AMS Life Science (TYO:2927) That You Should Know About

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating AFC-HD AMS Life Science (TYO:2927), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

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 AFC-HD AMS Life Science is:

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

0.11 = JP¥1.4b ÷ (JP¥19b - JP¥7.0b) (Based on the trailing twelve months to November 2020).

Thus, AFC-HD AMS Life Science has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 12% generated by the Personal Products industry.

View our latest analysis for AFC-HD AMS Life Science

Historical performance is a great place to start when researching a stock so above you can see the gauge for AFC-HD AMS Life Science's ROCE against it's prior returns. If you'd like to look at how AFC-HD AMS Life Science has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is AFC-HD AMS Life Science's ROCE Trending?

Over the past five years, AFC-HD AMS Life Science's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at AFC-HD AMS Life Science in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line On AFC-HD AMS Life Science's ROCE

In summary, AFC-HD AMS Life Science isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly, the stock has only gained 36% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing AFC-HD AMS Life Science, we've discovered 1 warning sign that you should be aware of.

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. 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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