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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. In light of that, when we looked at INDUS Holding (ETR:INH) and its ROCE trend, we weren't exactly thrilled.
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. To calculate this metric for INDUS Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.097 = €134m ÷ (€1.9b - €489m) (Based on the trailing twelve months to September 2024).
Therefore, INDUS Holding has an ROCE of 9.7%. In absolute terms, that's a low return, but it's much better than the Industrials industry average of 7.1%.
View our latest analysis for INDUS Holding
In the above chart we have measured INDUS Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for INDUS Holding .
What The Trend Of ROCE Can Tell Us
There hasn't been much to report for INDUS Holding's 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 INDUS Holding to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that INDUS Holding has been paying out a decent 46% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
Our Take On INDUS Holding's ROCE
In summary, INDUS Holding isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors appear hesitant that the trends will pick up because the stock has fallen 39% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.