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To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of WNS (Holdings) (NYSE:WNS) looks decent, right now, so lets see what the trend of returns can tell us.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for WNS (Holdings):
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$188m ÷ (US$1.4b - US$286m) (Based on the trailing twelve months to December 2024).
Thus, WNS (Holdings) has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 16% generated by the Professional Services industry.
Check out our latest analysis for WNS (Holdings)
Above you can see how the current ROCE for WNS (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 WNS (Holdings) .
What Can We Tell From WNS (Holdings)'s ROCE Trend?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 36% more capital in the last five years, and the returns on that capital have remained stable at 17%. 17% is a pretty standard return, and it provides some comfort knowing that WNS (Holdings) has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Bottom Line
In the end, WNS (Holdings) has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 44% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
WNS (Holdings) could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for WNS on our platform quite valuable.