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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Maintel Holdings (LON:MAI), we don't think it's current trends fit the mold of a multi-bagger.
What Is Return On Capital Employed (ROCE)?
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 Maintel Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = UK£4.1m ÷ (UK£83m - UK£49m) (Based on the trailing twelve months to June 2024).
So, Maintel Holdings has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 8.9% it's much better.
See our latest analysis for Maintel Holdings
Above you can see how the current ROCE for Maintel Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Maintel Holdings .
What Can We Tell From Maintel Holdings' ROCE Trend?
We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 36% in that same period. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. You could assume that if this continues, the business will be smaller in a few year time, so probably not a multi-bagger.
On a separate but related note, it's important to know that Maintel Holdings has a current liabilities to total assets ratio of 58%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Bottom Line On Maintel Holdings' ROCE
In summary, Maintel Holdings isn't reinvesting funds back into the business and returns aren't growing. And in the last five years, the stock has given away 45% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.