Wisdom Marine Lines Limited (Cayman) (TWSE:2637) Has Some Way To Go To Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Having said that, from a first glance at Wisdom Marine Lines Limited (Cayman) (TWSE:2637) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Wisdom Marine Lines Limited (Cayman) is:

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

0.045 = US$112m ÷ (US$2.9b - US$360m) (Based on the trailing twelve months to December 2023).

Therefore, Wisdom Marine Lines Limited (Cayman) has an ROCE of 4.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.4%.

View our latest analysis for Wisdom Marine Lines Limited (Cayman)

In the above chart we have measured Wisdom Marine Lines Limited (Cayman)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Wisdom Marine Lines Limited (Cayman) .

How Are Returns Trending?

Over the past five years, Wisdom Marine Lines Limited (Cayman)'s ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Wisdom Marine Lines Limited (Cayman) to be a multi-bagger going forward.

The Key Takeaway

In a nutshell, Wisdom Marine Lines Limited (Cayman) has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 169% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One final note, you should learn about the 4 warning signs we've spotted with Wisdom Marine Lines Limited (Cayman) (including 2 which are significant) .

While Wisdom Marine Lines Limited (Cayman) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have 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.