Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. However, after investigating Shibusawa Warehouse (TSE:9304), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Shibusawa Warehouse:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.045 = JP¥4.3b ÷ (JP¥113b - JP¥17b) (Based on the trailing twelve months to March 2024).
Thus, Shibusawa Warehouse has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Logistics industry average of 7.9%.
See our latest analysis for Shibusawa Warehouse
Historical performance is a great place to start when researching a stock so above you can see the gauge for Shibusawa Warehouse's ROCE against it's prior returns. If you're interested in investigating Shibusawa Warehouse's past further, check out this free graph covering Shibusawa Warehouse's past earnings, revenue and cash flow.
The Trend Of ROCE
In terms of Shibusawa Warehouse's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 4.5% for the last five years, and the capital employed within the business has risen 28% 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.
Our Take On Shibusawa Warehouse's ROCE
In conclusion, Shibusawa Warehouse has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 66% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
If you'd like to know about the risks facing Shibusawa Warehouse, we've discovered 1 warning sign that you should be aware of.
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.
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About TSE:9304
Shibusawa Warehouse
Provides logistics and warehousing services in Japan and internationally.
Solid track record with excellent balance sheet and pays a dividend.
