TDSE (TSE:7046) Has More To Do To Multiply In Value Going Forward

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating TDSE (TSE:7046), we don't think it's current trends fit the mold of a multi-bagger.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for TDSE, this is the formula:

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

0.089 = JP¥199m ÷ (JP¥2.7b - JP¥502m) (Based on the trailing twelve months to March 2025).

So, TDSE has an ROCE of 8.9%. Ultimately, that's a low return and it under-performs the IT industry average of 16%.

See our latest analysis for TDSE

Historical performance is a great place to start when researching a stock so above you can see the gauge for TDSE's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of TDSE.

What Can We Tell From TDSE's ROCE Trend?

There are better returns on capital out there than what we're seeing at TDSE. Over the past five years, ROCE has remained relatively flat at around 8.9% and the business has deployed 69% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, TDSE has done well to reduce current liabilities to 18% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Key Takeaway

In summary, TDSE has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 50% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think TDSE has the makings of a multi-bagger.

One more thing, we've spotted 3 warning signs facing TDSE that you might find interesting.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.