Nippon Concrete Industries (TSE:5269) Has Some Way To Go To Become A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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 briefly looking over the numbers, we don't think Nippon Concrete Industries (TSE:5269) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Nippon Concrete Industries:

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

0.032 = JP¥1.8b ÷ (JP¥79b - JP¥25b) (Based on the trailing twelve months to June 2024).

Therefore, Nippon Concrete Industries has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 7.8%.

Check out our latest analysis for Nippon Concrete Industries

In the above chart we have measured Nippon Concrete Industries' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Nippon Concrete Industries for free.

What Does the ROCE Trend For Nippon Concrete Industries Tell Us?

Over the past five years, Nippon Concrete Industries' 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. So don't be surprised if Nippon Concrete Industries doesn't end up being a multi-bagger in a few years time.

In Conclusion...

In a nutshell, Nippon Concrete Industries has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 55% 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.

One more thing, we've spotted 1 warning sign facing Nippon Concrete Industries that you might find interesting.

While Nippon Concrete Industries 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.