Yahoo Finance Investors Met With Slowing Returns on Capital At INDUS Holding (ETR:INH)
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at INDUS Holding (ETR:INH), it didn't seem to tick all of these boxes.
Understanding 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 INDUS Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = €166m ÷ (€1.9b - €460m) (Based on the trailing twelve months to December 2023).
Therefore, INDUS Holding has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Industrials industry average of 3.7% it's much better.
Check out 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, you can check out the forecasts from the analysts covering INDUS Holding for free.
How Are Returns Trending?
Things have been pretty stable at INDUS Holding, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's 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 43% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
What We Can Learn From 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 in the last five years, the stock has given away 32% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.
On a separate note, we've found 2 warning signs for INDUS Holding you'll probably want to know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
