C.UyemuraLtd (TSE:4966) Is Doing The Right Things To Multiply Its Share Price

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at C.UyemuraLtd (TSE:4966) and its trend of ROCE, we really liked what we saw.

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Understanding 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 C.UyemuraLtd:

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

0.18 = JP¥19b ÷ (JP¥122b - JP¥15b) (Based on the trailing twelve months to December 2024).

So, C.UyemuraLtd has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Chemicals industry.

View our latest analysis for C.UyemuraLtd

In the above chart we have measured C.UyemuraLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for C.UyemuraLtd .

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from C.UyemuraLtd. Over the last five years, returns on capital employed have risen substantially to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 61%. So we're very much inspired by what we're seeing at C.UyemuraLtd thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, C.UyemuraLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 230% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 4966 on our platform that is definitely worth checking out.

While C.UyemuraLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.