ARGO GRAPHICS (TSE:7595) Hasn't Managed To Accelerate Its Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at ARGO GRAPHICS' (TSE:7595) ROCE trend, we were pretty happy with what we saw.

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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 ARGO GRAPHICS is:

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

0.15 = JP¥10.0b ÷ (JP¥82b - JP¥18b) (Based on the trailing twelve months to December 2024).

So, ARGO GRAPHICS has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the IT industry average of 16%.

View our latest analysis for ARGO GRAPHICS

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

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 79% more capital in the last five years, and the returns on that capital have remained stable at 15%. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

To sum it up, ARGO GRAPHICS has simply been reinvesting capital steadily, at those decent rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you're still interested in ARGO GRAPHICS it's worth checking out our FREE intrinsic value approximation for 7595 to see if it's trading at an attractive price in other respects.

While ARGO GRAPHICS isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.