Toyo Seikan Group Holdings (TSE:5901) Has Some Way To Go To Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Having said that, from a first glance at Toyo Seikan Group Holdings (TSE:5901) 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?

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 Toyo Seikan Group Holdings, this is the formula:

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

0.037 = JP¥34b ÷ (JP¥1.2t - JP¥271b) (Based on the trailing twelve months to March 2024).

Therefore, Toyo Seikan Group Holdings has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Packaging industry average of 5.6%.

View our latest analysis for Toyo Seikan Group Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Toyo Seikan Group Holdings has performed in the past in other metrics, you can view this free graph of Toyo Seikan Group Holdings' past earnings, revenue and cash flow.

What Can We Tell From Toyo Seikan Group Holdings' ROCE Trend?

Things have been pretty stable at Toyo Seikan Group Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Toyo Seikan Group Holdings doesn't end up being a multi-bagger in a few years time.

What We Can Learn From Toyo Seikan Group Holdings' ROCE

In summary, Toyo Seikan Group Holdings isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 56% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we've found 1 warning sign for Toyo Seikan Group Holdings 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.

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