GDEP ADVANCEInc (TSE:5885) Might Become A Compounding Machine

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So, when we ran our eye over GDEP ADVANCEInc's (TSE:5885) trend of ROCE, we really liked what we saw.

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Understanding 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 GDEP ADVANCEInc:

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

0.23 = JP¥830m ÷ (JP¥4.5b - JP¥923m) (Based on the trailing twelve months to August 2025).

Thus, GDEP ADVANCEInc has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Electronic industry average of 9.2%.

View our latest analysis for GDEP ADVANCEInc

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

The Trend Of ROCE

GDEP ADVANCEInc deserves to be commended in regards to it's returns. The company has employed 155% more capital in the last four years, and the returns on that capital have remained stable at 23%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

The Bottom Line On GDEP ADVANCEInc's ROCE

In short, we'd argue GDEP ADVANCEInc has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Therefore it's no surprise that shareholders have earned a respectable 30% return if they held over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a separate note, we've found 1 warning sign for GDEP ADVANCEInc you'll probably want to know about.

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.