If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Motherson Sumi Systems (NSE:MOTHERSUMI), it didn't seem to tick all of these boxes.
What Does the ROCE Trend For Motherson Sumi Systems Tell Us?
When we looked at the ROCE trend at Motherson Sumi Systems, we didn't gain much confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 12%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
Link 👉Motherson Sumi