There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Tootsie Roll Industries' (NYSE:TR) ROCE trend, we were pretty happy with what we saw.
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 Tootsie Roll Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$118m ÷ (US$1.1b - US$78m) (Based on the trailing twelve months to March 2025).
Therefore, Tootsie Roll Industries has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Food industry.
View our latest analysis for Tootsie Roll Industries
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Tootsie Roll Industries has performed in the past in other metrics, you can view this free graph of Tootsie Roll Industries' past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 21% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Tootsie Roll Industries has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
In Conclusion...
To sum it up, Tootsie Roll Industries has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 22% over the last five years for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.
If you're still interested in Tootsie Roll Industries it's worth checking out our FREE intrinsic value approximation for TR to see if it's trading at an attractive price in other respects.
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.