Stock Analysis

Ohmura ShigyoLtd (TYO:3953) Has More To Do To Multiply In Value Going Forward

TSE:3953
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Having said that, from a first glance at Ohmura ShigyoLtd (TYO:3953) 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 Ohmura ShigyoLtd is:

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

0.042 = JP¥252m ÷ (JP¥7.3b - JP¥1.3b) (Based on the trailing twelve months to December 2020).

Therefore, Ohmura ShigyoLtd has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Packaging industry average of 6.3%.

See our latest analysis for Ohmura ShigyoLtd

roce
JASDAQ:3953 Return on Capital Employed March 29th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ohmura ShigyoLtd's ROCE against it's prior returns. If you're interested in investigating Ohmura ShigyoLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Over the past five years, Ohmura ShigyoLtd'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 Ohmura ShigyoLtd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Key Takeaway

In summary, Ohmura ShigyoLtd isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors may be recognizing these trends since the stock has only returned a total of 25% 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.

One final note, you should learn about the 2 warning signs we've spotted with Ohmura ShigyoLtd (including 1 which is concerning) .

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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