Did you know that there are financial metrics that can provide clues of a potential multi-bagger? Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. Therefore, when we briefly examined BANDAI NAMCO Holdings’ (ENG:N9B) ROCE trend, we were very pleased with what we saw.
Understanding return on capital employed (ROCE)
If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. Analysts use this formula to calculate it for BANDAI NAMCO Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.20 = 125b JP ÷ (863b JP – 243b JP) (Based on the last twelve months to March 2022).
Therefore, BANDAI NAMCO Holdings has a ROCE of 20%. In absolute terms, that’s a very respectable return and compared to the leisure industry average of 18%, that’s about on par.
Check out our latest analysis for BANDAI NAMCO Holdings
Above, you can see how BANDAI NAMCO Holdings’ current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you wish, you can view analyst forecasts covering BANDAI NAMCO Holdings here for free.
What does the BANDAI NAMCO Holdings ROCE trend tell us?
BANDAI NAMCO Holdings is to be commended for its returns. Over the past five years, ROCE has remained relatively stable at around 20% and the company has deployed 71% more capital into its operations. Now considering that the ROCE is an attractive 20%, this combination is actually quite attractive because it means the company can consistently put money to work and generate those high returns. If these trends can continue, we wouldn’t be surprised if the company went multi-bagger.
In short, we would say that BANDAI NAMCO Holdings has the makings of a multi-bagger since it has been able to compound its capital at very profitable rates of return. And long-term investors would be delighted with the 142% return they’ve received over the past five years. So while the positive underlying trends can be explained by investors, we still think this stock deserves further investigation.
If you want to know the risks BANDAI NAMCO Holdings faces, we have discovered 1 warning sign of which you should be aware.
BANDAI NAMCO Holdings isn’t the only stock delivering high returns. If you want to see more, check out our free list of companies with high returns on equity with strong fundamentals.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.