Here's What To Make Of L is B's (TSE:145A) Decelerating Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating L is B (TSE:145A), we don't think it's current trends fit the mold of a multi-bagger.

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What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for L is B, this is the formula:

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

0.034 = JP¥73m ÷ (JP¥2.7b - JP¥471m) (Based on the trailing twelve months to March 2025).

Therefore, L is B has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the IT industry average of 15%.

View our latest analysis for L is B

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

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at L is B, with its capital employed and returns on that capital staying somewhat the same for the last . It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if L is B doesn't end up being a multi-bagger in a few years time.

Our Take On L is B's ROCE

We can conclude that in regards to L is B's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 67% over the last year, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One final note, you should learn about the 3 warning signs we've spotted with L is B (including 1 which makes us a bit uncomfortable) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.