Slowing Rates Of Return At Keisei Electric Railway (TSE:9009) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Keisei Electric Railway (TSE:9009) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Keisei Electric Railway:

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

0.039 = JP¥34b ÷ (JP¥1.1t - JP¥198b) (Based on the trailing twelve months to December 2024).

Thus, Keisei Electric Railway has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Transportation industry average of 5.1%.

See our latest analysis for Keisei Electric Railway

Above you can see how the current ROCE for Keisei Electric Railway compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Keisei Electric Railway .

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Keisei Electric Railway, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Keisei Electric Railway to be a multi-bagger going forward.

The Bottom Line On Keisei Electric Railway's ROCE

We can conclude that in regards to Keisei Electric Railway's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 21% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know more about Keisei Electric Railway, we've spotted 4 warning signs, and 2 of them are potentially serious.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.