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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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, Queen's Road Capital Investment (TSE:QRC) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
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. Analysts use this formula to calculate it for Queen's Road Capital Investment:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$50m ÷ (US$350m - US$30m) (Based on the trailing twelve months to November 2024).
Thus, Queen's Road Capital Investment has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 1.1% generated by the Metals and Mining industry.
Check out our latest analysis for Queen's Road Capital Investment
Historical performance is a great place to start when researching a stock so above you can see the gauge for Queen's Road Capital Investment's ROCE against it's prior returns. If you're interested in investigating Queen's Road Capital Investment's past further, check out this free graph covering Queen's Road Capital Investment's past earnings, revenue and cash flow.
So How Is Queen's Road Capital Investment's ROCE Trending?
The fact that Queen's Road Capital Investment is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 16% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Queen's Road Capital Investment is utilizing 24,395% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Bottom Line On Queen's Road Capital Investment's ROCE
Overall, Queen's Road Capital Investment gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Investors may not be impressed by the favorable underlying trends yet because over the last three years the stock has only returned 19% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.