If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. Typically, we will want to notice a growth trend come back on capital employed (ROCE) and at the same time, a base capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. So when we ran our eyes L&T’ Technology Services (NSE:LTTS) ROCE trend, we really liked what we saw.
Return on capital employed (ROCE): what is it?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. Analysts use this formula to calculate it for L&T Technology Services:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.26 = ₹12b ÷ (₹62b – ₹13b) (Based on the last twelve months to June 2022).
So, L&T Technology Services posted a ROCE of 26%. In absolute terms, this is an excellent performance and even better than the professional services industry average of 12%.
Check out our latest analysis for L&T Technology Services
Above, you can see how L&T Technology Services’ current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
So, what is the L&T Technology Services ROCE trend?
We’d rather be happy with returns on capital like L&T Technology Services. Over the past five years, ROCE has remained relatively stable at around 26% and the company has deployed 204% more capital into its operations. Now considering the ROCE is an attractive 26%, this combination is actually quite attractive because it means the company can consistently put money to work and generate those high returns. If L&T Technology Services can continue like this, we would be very optimistic about its future.
What we can learn from L&T Technology Services’ ROCE
In summary, we are pleased to see that L&T Technology Services has accumulated returns by reinvesting at consistently high rates of return, as these are common characteristics of a multi-bagger. And the stock has done incredibly well with a 399% return over the past five years, so long-term investors are no doubt pleased with this result. So while investors seem to recognize these promising trends, we still think the stock warrants further research.
If you want to further research L&T technology services, you might be interested to know the 2 warning signs that our analysis found.
If you want to see other businesses earning high returns, check out our free list of companies earning high returns with strong balance sheets here.
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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.