In This Article:
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after briefly looking over the numbers, we don't think Shine Justice (ASX:SHJ) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Shine Justice is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.099 = AU$49m ÷ (AU$636m - AU$147m) (Based on the trailing twelve months to December 2022).
Therefore, Shine Justice has an ROCE of 9.9%. In absolute terms, that's a low return but it's around the Consumer Services industry average of 8.6%.
View our latest analysis for Shine Justice
In the above chart we have measured Shine Justice'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 report for Shine Justice.
So How Is Shine Justice's ROCE Trending?
In terms of Shine Justice's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.9% for the last five years, and the capital employed within the business has risen 46% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
The Bottom Line On Shine Justice's ROCE
In conclusion, Shine Justice has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 11% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
On a separate note, we've found 2 warning signs for Shine Justice you'll probably want to know about.
While Shine Justice isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.