To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at AXELL (TSE:6730) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for AXELL:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = JP¥2.4b ÷ (JP¥16b - JP¥2.6b) (Based on the trailing twelve months to March 2024).
Thus, AXELL has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 12% generated by the Semiconductor industry.
View our latest analysis for AXELL
Historical performance is a great place to start when researching a stock so above you can see the gauge for AXELL's ROCE against it's prior returns. If you'd like to look at how AXELL has performed in the past in other metrics, you can view this free graph of AXELL's past earnings, revenue and cash flow.
So How Is AXELL's ROCE Trending?
AXELL is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 19%. The amount of capital employed has increased too, by 22%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what AXELL has. And a remarkable 121% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for AXELL (of which 1 can't be ignored!) that you should know about.
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. 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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About TSE:6730
AXELL
Designs, manufactures, and sells semiconductor ICs and printed circuit boards with embedded semiconductor ICs in Japan.
Flawless balance sheet second-rate dividend payer.
