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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. So on that note, Perma-Pipe International Holdings (NASDAQ:PPIH) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Perma-Pipe International Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$20m ÷ (US$165m - US$54m) (Based on the trailing twelve months to January 2025).
So, Perma-Pipe International Holdings has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 12% generated by the Machinery industry.
View our latest analysis for Perma-Pipe International Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Perma-Pipe International Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Perma-Pipe International Holdings.
What Can We Tell From Perma-Pipe International Holdings' ROCE Trend?
Perma-Pipe International Holdings is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 40% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
In Conclusion...
To sum it up, Perma-Pipe International Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 135% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.