Capital Allocation Trends At Sakai Moving ServiceLtd (TSE:9039) Aren't Ideal

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Sakai Moving ServiceLtd (TSE:9039), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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. To calculate this metric for Sakai Moving ServiceLtd, this is the formula:

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

0.14 = JP¥13b ÷ (JP¥121b - JP¥27b) (Based on the trailing twelve months to March 2024).

Thus, Sakai Moving ServiceLtd has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 4.8% it's much better.

Check out our latest analysis for Sakai Moving ServiceLtd

In the above chart we have measured Sakai Moving ServiceLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Sakai Moving ServiceLtd .

How Are Returns Trending?

In terms of Sakai Moving ServiceLtd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 17% over the last five years. However it looks like Sakai Moving ServiceLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

To conclude, we've found that Sakai Moving ServiceLtd is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 14% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you're still interested in Sakai Moving ServiceLtd it's worth checking out our FREE intrinsic value approximation for 9039 to see if it's trading at an attractive price in other respects.

While Sakai Moving ServiceLtd 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com