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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, the ROCE of Pet Valu Holdings (TSE:PET) looks attractive right now, so lets see what the trend of returns can tell us.
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 Pet Valu Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = CA$155m ÷ (CA$953m - CA$186m) (Based on the trailing twelve months to June 2024).
Thus, Pet Valu Holdings has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 11%.
See our latest analysis for Pet Valu Holdings
Above you can see how the current ROCE for Pet Valu Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Pet Valu Holdings for free.
What Does the ROCE Trend For Pet Valu Holdings Tell Us?
Pet Valu Holdings deserves to be commended in regards to it's returns. The company has employed 90% more capital in the last four years, and the returns on that capital have remained stable at 20%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
The Bottom Line On Pet Valu Holdings' ROCE
In summary, we're delighted to see that Pet Valu Holdings has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. Yet over the last three years the stock has declined 14%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
If you want to continue researching Pet Valu Holdings, you might be interested to know about the 1 warning sign that our analysis has discovered.