If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount 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. However, after briefly looking over the numbers, we don’t think Niks Professional (Catalist:NPL) has the makings of a multi-bagger going forward, but let’s have a look at why that may be.
For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Niks Professional:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.12 = S$2.3m ÷ (S$22m – S$2.3m) (Based on the trailing twelve months to June 2024).
Thus, Niks Professional has an ROCE of 12%. In absolute terms, that’s a satisfactory return, but compared to the Healthcare industry average of 7.7% it’s much better.
See our latest analysis for Niks Professional
Historical performance is a great place to start when researching a stock so above you can see the gauge for Niks Professional’s ROCE against it’s prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Niks Professional.
We’ve noticed that although returns on capital are flat over the last three years, the amount of capital employed in the business has fallen 23% in that same period. This indicates to us that assets are being sold and thus the business is likely shrinking, which you’ll remember isn’t the typical ingredients for an up-and-coming multi-bagger. So if this trend continues, don’t be surprised if the business is smaller in a few years time.
In summary, Niks Professional isn’t reinvesting funds back into the business and returns aren’t growing. And in the last year, the stock has given away 25% so the market doesn’t look too hopeful on these trends strengthening any time soon. On the whole, we aren’t too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
Niks Professional does have some risks, we noticed 6 warning signs (and 2 which are a bit unpleasant) we think you should know about.
