Stock Analysis

Does Lakeland Industries (NASDAQ:LAKE) Have The DNA Of A Multi-Bagger?

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NasdaqGM:LAKE
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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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Lakeland Industries (NASDAQ:LAKE) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Lakeland Industries, this is the formula:

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

0.32 = US$36m ÷ (US$132m - US$17m) (Based on the trailing twelve months to October 2020).

So, Lakeland Industries has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Luxury industry average of 15%.

Check out our latest analysis for Lakeland Industries

roce
NasdaqGM:LAKE Return on Capital Employed March 12th 2021

In the above chart we have measured Lakeland Industries' 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 report for Lakeland Industries.

What Does the ROCE Trend For Lakeland Industries Tell Us?

Investors would be pleased with what's happening at Lakeland Industries. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 32%. Basically the business is earning more per dollar of capital invested and in addition to that, 64% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 13%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Lakeland Industries has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Lakeland Industries has. Since the stock has returned a staggering 153% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing: We've identified 3 warning signs with Lakeland Industries (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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