There are a few key trends to look out for if we want to identify the next multi-bagger. Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. Therefore, when we briefly examined Richards Packaging Income Fund (TSE:RPI.UN) ROCE trend, we were very pleased with what we saw.
What is return on capital employed (ROCE)?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. Analysts use this formula to calculate it for Richards Packaging Income Fund:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.27 = C$66 million ÷ (C$348 million – C$102 million) (Based on the last twelve months to March 2022).
Thereby, Richards Packaging Income Fund has an ROI of 27%. In absolute terms, this is an excellent return and is even better than the packaging industry average of 13%.
See our latest analysis for Richards Packaging Income Fund
Above, you can see how Richards Packaging Income Fund’s current ROI compares to its past returns on capital, but there’s little you can say about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
What can we say about the ROCE trend of Richards Packaging Income Fund?
It’s hard not to be impressed with the capital returns of Richards Packaging Income Fund. The company has employed 76% more capital over the past five years, and the return on that capital has remained stable at 27%. Such returns are the envy of most companies and given that they have repeatedly reinvested at these rates, even better. If these trends can continue, we wouldn’t be surprised if the company went multi-bagger.
In summary, we are pleased to see that Richards Packaging Income Fund has compounded returns by reinvesting at consistently high rates of return, as these are common characteristics of a multi-bagger. And since the stock has risen sharply over the past five years, it looks like the market might be expecting that trend to continue. So while the stock may be more “expensive” than it used to be, we believe the strong fundamentals warrant this stock for further research.
One more thing we spotted 4 warning signs deal with Richards Packaging Income Fund that might be of interest to you.
High yields are a key ingredient to strong performance, so check out our free list of stocks generating high returns on equity with strong balance sheets.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.