Daishin ChemicalLtd (TSE:4629) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Daishin ChemicalLtd (TSE:4629) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for Daishin ChemicalLtd:

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

0.053 = JP¥842m ÷ (JP¥25b - JP¥8.9b) (Based on the trailing twelve months to December 2023).

Thus, Daishin ChemicalLtd has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 6.8%.

View our latest analysis for Daishin ChemicalLtd

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

How Are Returns Trending?

Over the past , Daishin ChemicalLtd's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Daishin ChemicalLtd to be a multi-bagger going forward.

Our Take On Daishin ChemicalLtd's ROCE

In a nutshell, Daishin ChemicalLtd has been trudging along with the same returns from the same amount of capital over the last . Although the market must be expecting these trends to improve because the stock has gained 41% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we've found 3 warning signs for Daishin ChemicalLtd that we think you should be aware of.

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. 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.