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

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Keisei Electric Railway (TSE:9009) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Keisei Electric Railway, this is the formula:

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

0.042 = JP¥36b ÷ (JP¥1.1t - JP¥231b) (Based on the trailing twelve months to March 2025).

So, Keisei Electric Railway has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Transportation industry average of 5.3%.

Check out 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 .

So How Is Keisei Electric Railway's ROCE Trending?

Over the past five years, Keisei Electric Railway's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's 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

In summary, Keisei Electric Railway isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly, the stock has only gained 17% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about Keisei Electric Railway, we've spotted 3 warning signs, and 2 of them make us uncomfortable.

While Keisei Electric Railway 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.