Will the Promising Trends At ImagineerLtd (TYO:4644) Continue?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, ImagineerLtd (TYO:4644) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on ImagineerLtd is:

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

0.14 = JP¥1.5b ÷ (JP¥11b - JP¥723m) (Based on the trailing twelve months to September 2020).

So, ImagineerLtd has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 13% generated by the Entertainment industry.

Check out our latest analysis for ImagineerLtd

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 ImagineerLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

ImagineerLtd is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 20% more capital is being employed now too. So we're very much inspired by what we're seeing at ImagineerLtd thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that ImagineerLtd is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 34% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Like most companies, ImagineerLtd 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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