Return Trends At Sakae Electronics (TSE:7567) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Sakae Electronics (TSE:7567) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Sakae Electronics is:

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

0.02 = JP¥95m ÷ (JP¥6.9b - JP¥2.2b) (Based on the trailing twelve months to December 2024).

So, Sakae Electronics has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 9.0%.

View our latest analysis for Sakae Electronics

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

How Are Returns Trending?

In terms of Sakae Electronics' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 2.0% for the last five years, and the capital employed within the business has risen 53% in that time. 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.

In Conclusion...

In summary, Sakae Electronics has simply been reinvesting capital and generating the same low rate of return as before. And investors may be recognizing these trends since the stock has only returned a total of 32% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to continue researching Sakae Electronics, you might be interested to know about the 4 warning signs that our analysis has discovered.

While Sakae Electronics may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.