There are a few key trends to look for if we are to identify the next multi-bagger. First, we would like to identify a growth to recover on capital employed (ROCE) and at the same time, a based capital employed. Ultimately, this demonstrates that this is a company that is reinvesting its profits at increasing rates of return. So when we looked through our eyes TTK Prestige (NSE: TTKPRESTIG) trend of the ROCE, we really liked what we saw.
Understanding Return on Capital Employed (ROCE)
If you’ve never worked with ROCE before, it measures the “return” (profit before tax) that a business generates on capital employed in its business. To calculate this metric for TTK Prestige, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.22 = 3.8b ÷ (₹ 22b – ₹ 5.4b) (Based on the last twelve months up to September 2021).
So, TTK Prestige has a ROCE of 22%. In absolute terms, that’s a great return and it’s even better than the consumer durables industry average of 15%.
See our latest review for TTK Prestige
Above you can see how TTK Prestige’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you want, you can view analyst forecasts covering TTK Prestige here for free.
So what’s the TTK Prestige ROCE trend?
It’s hard not to be impressed by the returns on capital from TTK Prestige. The company has employed 79% more capital over the past five years and returns on that capital have remained stable at 22%. Now that the ROCE is attractive at 22%, this combination is actually quite attractive because it means that the company can constantly put money in to work and generate those high returns. If TTK Prestige can continue this momentum, we would be very optimistic about its future.
The bottom line
In the end, the company has proven that it can reinvest its capital at high rates of return, which you will recall is a hallmark of a multi-bagger. On top of that, the stock rewarded shareholders with a remarkable 147% return for those who have held it in the past five years. So while investors seem to recognize these promising trends, we still believe the stock deserves further research.
On a final note, we found 1 warning sign for TTK Prestige that we think you should be aware of.
If you’d like to see other companies driving high returns, check out our free List of high yielding companies with strong balance sheets here.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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