In This Article:
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Napier Port Holdings (NZSE:NPH), we don't think it's current trends fit the mold of a multi-bagger.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Napier Port Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.057 = NZ$31m ÷ (NZ$572m - NZ$24m) (Based on the trailing twelve months to June 2024).
Thus, Napier Port Holdings has an ROCE of 5.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.7%.
Check out our latest analysis for Napier Port Holdings
Above you can see how the current ROCE for Napier Port Holdings 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 analyst report for Napier Port Holdings .
What Can We Tell From Napier Port Holdings' ROCE Trend?
When we looked at the ROCE trend at Napier Port Holdings, we didn't gain much confidence. To be more specific, ROCE has fallen from 8.5% over the last five years. However it looks like Napier Port Holdings might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
In Conclusion...
To conclude, we've found that Napier Port Holdings is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 23% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.