Return Trends At Metrofile Holdings (JSE:MFL) Aren't Appealing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Metrofile Holdings (JSE:MFL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is 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. The formula for this calculation on Metrofile Holdings is:

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

0.16 = R200m ÷ (R1.5b - R248m) (Based on the trailing twelve months to June 2024).

Thus, Metrofile Holdings has an ROCE of 16%. In absolute terms, that's a pretty standard return but compared to the IT industry average it falls behind.

View our latest analysis for Metrofile Holdings

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 Metrofile Holdings has performed in the past in other metrics, you can view this free graph of Metrofile Holdings' past earnings, revenue and cash flow.

The Trend Of ROCE

There hasn't been much to report for Metrofile Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Metrofile Holdings to be a multi-bagger going forward.

The Bottom Line

In summary, Metrofile Holdings isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Metrofile Holdings has the makings of a multi-bagger.

If you want to know some of the risks facing Metrofile Holdings we've found 6 warning signs (2 are a bit concerning!) that you should be aware of before investing here.

While Metrofile Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.