To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Jardine Cycle & Carriage (SGX:C07), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What is it?
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. Analysts use this formula to calculate it for Jardine Cycle & Carriage:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities )
0.079 = US$1.7b ÷ (US$29b - US$7.6b) (Based on the trailing twelve months to December 2021).
So, Jardine Cycle & Carriage has an ROCE of 7.9%. In absolute terms, that's a low return but it's around the Industrials industry average of 7.1%.
View our latest analysis for Jardine Cycle & CarriageSGX:C07 Return on Capital Employed July 12th 2022
Above you can see how the current ROCE for Jardine Cycle & Carriage compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Jardine Cycle & Carriage.
The Trend Of ROCE
On the surface, the trend of ROCE at Jardine Cycle & Carriage doesn't inspire confidence. Around five years ago the returns on capital were 10%, but since then they've fallen to 7.9%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Bottom Line On Jardine Cycle & Carriage's ROCE
While returns have fallen for Jardine Cycle & Carriage in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 24% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
One more thing to note, we've identified 1 warning sign with Jardine Cycle & Carriage and understanding this should be part of your investment process.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.