eMedia Holdings (JSE:EMH) Might Have The Makings Of A Multi-Bagger

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at eMedia Holdings (JSE:EMH) and its trend of ROCE, we really liked what we saw.

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 eMedia Holdings, this is the formula:

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

0.097 = R496m ÷ (R5.8b - R704m) (Based on the trailing twelve months to September 2022).

Therefore, eMedia Holdings has an ROCE of 9.7%. Even though it's in line with the industry average of 10%, it's still a low return by itself.

Check out our latest analysis for eMedia Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for eMedia Holdings' ROCE against it's prior returns. If you're interested in investigating eMedia Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is eMedia Holdings' ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at eMedia Holdings. We found that the returns on capital employed over the last five years have risen by 411%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, eMedia Holdings appears to been achieving more with less, since the business is using 36% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

In Conclusion...

From what we've seen above, eMedia Holdings has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a solid 44% to shareholders over the last five years, it's fair to say investors are beginning to recognize 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.

On a separate note, we've found 1 warning sign for eMedia Holdings you'll probably want to know about.

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.