There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Insimbi Industrial Holdings' (JSE:ISB) ROCE trend, we were pretty happy with what we saw.
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. Analysts use this formula to calculate it for Insimbi Industrial Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = R171m ÷ (R1.6b - R621m) (Based on the trailing twelve months to August 2023).
Thus, Insimbi Industrial Holdings has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Trade Distributors industry average of 17%.
View our latest analysis for Insimbi Industrial 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're interested in investigating Insimbi Industrial Holdings' past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
While the returns on capital are good, they haven't moved much. The company has employed 54% more capital in the last five years, and the returns on that capital have remained stable at 18%. 18% is a pretty standard return, and it provides some comfort knowing that Insimbi Industrial Holdings has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On Insimbi Industrial Holdings' ROCE
The main thing to remember is that Insimbi Industrial Holdings has proven its ability to continually reinvest at respectable rates of return. Yet over the last five years the stock has declined 14%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.
One more thing: We've identified 4 warning signs with Insimbi Industrial Holdings (at least 1 which is significant) , and understanding them would certainly be useful.