To find multi-bagger stocks, you first need to identify a trend that is growing. return Return on Invested Capital (ROCE) and in parallel, base ROCE on invested capital is equal to 20% of invested capital. When you see this figure, it usually means that you have a company with a good business model and lots of profitable reinvestment opportunities. With that in mind, shift (TSE:3697) looks great, so let’s see what the trends tell us.
What is Return on Invested Capital (ROCE)?
For those who don’t know, ROCE is the ratio of a company’s annual pre-tax profit (revenue) to the capital employed in the business. Analysts use the following formula to calculate SHIFT’s ROCE:
Return on Invested Capital = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)
0.29 = 11 billion yen ÷ (62 billion yen – 24 billion yen) (Based on the trailing 12 months ending February 2024).
So, SHIFT’s ROCE is 29%. Not only is this an excellent return, but it’s also higher than the average return of 16% earned by companies in a similar industry.
Check out our latest analysis for SHIFT
In the chart above we compare SHIFT’s historical ROCE with its past performance, but arguably the future is more important – if you’d like you can see forecasts from the analysts covering SHIFT. free.
What can SHIFT’s ROCE trend tell us?
We are pleased with what’s happening with SHIFT. Looking at the numbers, over the past five years, the company has seen a massive 29% increase in returns generated from invested capital. Essentially, it is generating more returns per dollar of capital invested, and on top of that, it has seen a 693% increase in capital currently deployed. Increasing returns on increasing capital is common with multi-baggers, which is why we are impressed.
Our take on SHIFT’s ROCE
In summary, it’s great to see SHIFT being able to compound its returns by continually reinvesting capital and increasing its rate of return, as this is part of the key ingredients of a highly popular multi-bagger. Also, the impressive total return of 122% over the past five years suggests investors are expecting even better things to come in the future, so I think it’s worth checking out whether these trends will continue.
For more information about SHIFT, 1. Warning Signs was found by our analysis.
SHIFT is not the only stock making a profit. To learn more, free A list of companies with solid fundamentals and high return on equity.
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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
