If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Enviro-Hub Holdings (SGX:L23) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Enviro-Hub Holdings, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.057 = S$8.0m ÷ (S$158m - S$19m) (Based on the trailing twelve months to December 2022).

Thus, Enviro-Hub Holdings has an ROCE of 5.7%. Even though it's in line with the industry average of 6.0%, it's still a low return by itself.

See our latest analysis for Enviro-Hub Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Enviro-Hub Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Enviro-Hub Holdings, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Enviro-Hub Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Enviro-Hub Holdings to be a multi-bagger going forward.

The Bottom Line

In a nutshell, Enviro-Hub Holdings has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 14% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Enviro-Hub Holdings does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

While Enviro-Hub Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here