Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Port of Tauranga (NZSE:POT), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
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. To calculate this metric for Port of Tauranga, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.07 = NZ$185m ÷ (NZ$3.0b - NZ$346m) (Based on the trailing twelve months to June 2025).
Therefore, Port of Tauranga has an ROCE of 7.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.0%.
See our latest analysis for Port of Tauranga
In the above chart we have measured Port of Tauranga'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 Port of Tauranga .
What Does the ROCE Trend For Port of Tauranga Tell Us?
There are better returns on capital out there than what we're seeing at Port of Tauranga. The company has consistently earned 7.0% for the last five years, and the capital employed within the business has risen 72% 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...
Long story short, while Port of Tauranga has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 19% 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 about the risks facing Port of Tauranga, we've discovered 1 warning sign that you should be aware of.
While Port of Tauranga 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.
Valuation is complex, but we're here to simplify it.
Discover if Port of Tauranga might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.