We're Watching These Trends At Havix (TYO:3895)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Havix (TYO:3895), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Havix, this is the formula:

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

0.067 = JP¥756m ÷ (JP¥15b - JP¥3.3b) (Based on the trailing twelve months to September 2020).

So, Havix has an ROCE of 6.7%. In absolute terms, that's a low return and it also under-performs the Household Products industry average of 16%.

View our latest analysis for Havix

Historical performance is a great place to start when researching a stock so above you can see the gauge for Havix's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Havix, check out these free graphs here.

The Trend Of ROCE

The returns on capital haven't changed much for Havix in recent years. The company has employed 33% more capital in the last five years, and the returns on that capital have remained stable at 6.7%. 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.

The Key Takeaway

In conclusion, Havix has been investing more capital into the business, but returns on that capital haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 18% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Havix does have some risks, we noticed 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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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