If you’re not sure where to start when looking for the next multibagger, there are a few key trends to look out for. In a perfect world, we would like to see a company invest more capital in its business and, ideally, the returns generated from that capital increase as well. Essentially, this means that a company has profitable initiatives that it can continue to reinvest in, which is a characteristic of a compounding machine. However, at first glance KOSE (TSE:4922) We are not exactly thrilled about the yield development, but let’s take a closer look at the whole thing.
What is return on capital employed (ROCE)?
If you’ve never worked with ROCE before, it measures the “return” (earnings before taxes) that a company generates on the capital employed in its business. Analysts use this formula to calculate it for KOSÉ:
Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)
0.061 = JP¥19 billion ÷ (JP¥380 billion – JP¥64 billion) (Based on the last twelve months to June 2024).
Therefore, KOSÉ has a ROCE of 6.1%. In absolute terms, this is a low return and it is also below the industry average for personal care products of 9.5%.
Check out our latest analysis for KOSÉ
In the chart above, we have compared KOSÉ’s ROCE with its past performance, but the future is arguably more important. If you want, you can see the analysts’ forecasts for KOSÉ for free.
So how is KOSÉ’s ROCE developing?
When we looked at the ROCE trend at KOSÉ, we were not very confident. More specifically, ROCE has fallen by 20% over the past five years. On the other hand, the company has deployed more capital over the past year without a corresponding improvement in revenue, which could suggest that these investments are for the longer term. It is worth keeping an eye on the company’s earnings from now on to see if these investments actually end up contributing to the bottom line.
The conclusion
Finally, we noted that while KOSÉ is reinvesting in the business, returns have been declining. And over the past five years, the stock has lost 49%, so the market is not too confident that these trends will strengthen in the near future. Overall, we are not too excited about the underlying trends and believe there are better chances of finding a multibagger elsewhere.
If you are still interested in KOSÉ, it is worth taking a look at our FREE intrinsic value approximation for 4922 to see if it is trading at an attractive price in other respects as well.
Although KOSÉ does not have the highest return, check out the following free List of companies with solid balance sheets and high returns on equity.
Valuation is complex, but we are here to simplify it.
Find out if KOSÉ could be undervalued or overvalued with our detailed analysis, with Fair value estimates, potential risks, dividends, insider trading and the company’s financial condition.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
