Yahoo Finance Shareholders Are Optimistic That James Halstead (LON:JHD) Will Multiply In Value
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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 James Halstead (LON:JHD) looks attractive 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. The formula for this calculation on James Halstead is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.31 = UK£51m ÷ (UK£238m - UK£76m) (Based on the trailing twelve months to December 2021).
Thus, James Halstead has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Building industry average of 14%.
Check out our latest analysis for James Halstead
In the above chart we have measured James Halstead'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 James Halstead.
So How Is James Halstead's ROCE Trending?
It's hard not to be impressed by James Halstead's returns on capital. The company has employed 27% more capital in the last five years, and the returns on that capital have remained stable at 31%. Now considering ROCE is an attractive 31%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If James Halstead can keep this up, we'd be very optimistic about its future.
The Bottom Line
In summary, we're delighted to see that James Halstead has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. However, over the last five years, the stock has only delivered a 13% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.
James Halstead does have some risks though, and we've spotted 1 warning sign for James Halstead that you might be interested in.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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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.
