Has Planet (TYO:2391) Got What It Takes To Become A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Planet (TYO:2391) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Planet, this is the formula:

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

0.16 = JP¥765m ÷ (JP¥5.3b - JP¥479m) (Based on the trailing twelve months to October 2020).

So, Planet has an ROCE of 16%. By itself that's a normal return on capital and it's in line with the industry's average returns of 16%.

Check out our latest analysis for Planet

Historical performance is a great place to start when researching a stock so above you can see the gauge for Planet's ROCE against it's prior returns. If you'd like to look at how Planet has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 36% in that time. 16% is a pretty standard return, and it provides some comfort knowing that Planet has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

The main thing to remember is that Planet has proven its ability to continually reinvest at respectable rates of return. In light of this, the stock has only gained 18% over the last five years for shareholders who have owned the stock in this period. So to determine if Planet is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Like most companies, Planet does come with some risks, and we've found 1 warning sign that you should be aware of.

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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