Has VisionaryholdingsLtd (TYO:9263) Got What It Takes To Become A Multi-Bagger?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at VisionaryholdingsLtd (TYO:9263) and its ROCE trend, we weren't exactly thrilled.

What is 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. The formula for this calculation on VisionaryholdingsLtd is:

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

0.012 = JP¥139m ÷ (JP¥21b - JP¥9.1b) (Based on the trailing twelve months to October 2020).

So, VisionaryholdingsLtd has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 8.6%.

Check out our latest analysis for VisionaryholdingsLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for VisionaryholdingsLtd's ROCE against it's prior returns. If you're interested in investigating VisionaryholdingsLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For VisionaryholdingsLtd Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 11% two years ago, while the business's capital employed increased by 56%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. It's unlikely that all of the funds raised have been put to work yet, so as a consequence VisionaryholdingsLtd might not have received a full period of earnings contribution from it.

Another thing to note, VisionaryholdingsLtd has a high ratio of current liabilities to total assets of 44%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by VisionaryholdingsLtd's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 37% over the last three years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for VisionaryholdingsLtd (of which 1 is potentially serious!) that you should know about.

While VisionaryholdingsLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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