Shareholders Would Enjoy A Repeat Of Syuppin's (TSE:3179) Recent Growth In Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 when we looked at the ROCE trend of Syuppin (TSE:3179) we really liked what we saw.

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 Syuppin is:

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

0.35 = JP¥3.7b ÷ (JP¥17b - JP¥6.6b) (Based on the trailing twelve months to June 2024).

Therefore, Syuppin has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 11%.

See our latest analysis for Syuppin

In the above chart we have measured Syuppin's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Syuppin .

What Does the ROCE Trend For Syuppin Tell Us?

The trends we've noticed at Syuppin are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 35%. Basically the business is earning more per dollar of capital invested and in addition to that, 74% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

In summary, it's great to see that Syuppin can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Considering the stock has delivered 22% 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 with that in mind, we think the stock deserves further research.

Syuppin does have some risks though, and we've spotted 2 warning signs for Syuppin that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.