If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Dewhurst Group (LON:DWHT), it didn’t seem to tick all of these boxes.
Just to clarify if you’re unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Dewhurst Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.13 = UK£8.1m ÷ (UK£73m – UK£9.6m) (Based on the trailing twelve months to September 2024).
Therefore, Dewhurst Group has an ROCE of 13%. In absolute terms, that’s a pretty normal return, and it’s somewhat close to the Electrical industry average of 11%.
See our latest analysis for Dewhurst Group
In the above chart we have measured Dewhurst Group’s prior ROCE against its prior performance, but the future is arguably more important. If you’d like, you can check out the forecasts from the analysts covering Dewhurst Group for free.
Over the past five years, Dewhurst Group’s ROCE and capital employed have both remained mostly flat. This tells us the company isn’t reinvesting in itself, so it’s plausible that it’s past the growth phase. So unless we see a substantial change at Dewhurst Group in terms of ROCE and additional investments being made, we wouldn’t hold our breath on it being a multi-bagger.
In a nutshell, Dewhurst Group has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 13% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you’re hunting for a multi-bagger, we think you’d have more luck elsewhere.
Like most companies, Dewhurst Group does come with some risks, and we’ve found 1 warning sign that you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
