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The return on capital on Career Point (NSE:CAREERP) has hit the brakes

If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends to look out for. We want to see two things, among other things; primarily a growing one yield on invested capital (ROCE) and secondly on an expansion of the company quantity of the invested capital. This shows us that it is a compounding machine, capable of continually reinvesting its earnings into the business and generating higher returns. After briefly looking at the numbers, however, we don’t think twice Career point (NSE:CAREERP) has the makings of a future multi-bagger, but let’s take a look at why that is.

Understanding return on capital employed (ROCE)

For those unsure of what ROCE is, it measures the amount of pre-tax profit a company can generate from the capital used in its business. The formula for this calculation on Career Point is:

Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)

0.057 = ₹324m ÷ (₹5.9b – ₹229m) (Based on the last twelve months up to and including December 2023).

Therefore, Career Point has a ROCE of 5.7%. Ultimately, that’s a low return and it performs below the consumer services industry average of 9.1%.

Check out our latest analysis for Career Point

NSEI:CAREERP Return on Capital Employed May 21, 2024

While the past is not representative of the future, it can be useful to know how a company has performed historically. That’s why we have this diagram above. If you want to see how Career Point has performed in the past in other metrics, you can check this out free graph of Career Point’s past earnings, revenue and cash flow.

What the ROCE trend can tell us

There are better returns on capital than what we see at Career Point. The company has consistently earned 5.7% over the past five years, and capital employed within the company has increased 25% in that time. As the company has increased the amount of capital invested, it appears that the investments made are simply not providing a high return on capital.

Finally…

Long story short, although Career Point has reinvested its capital, the returns it generates have not increased. Investors must be thinking that better things are ahead because the stock has knocked it out of the park, delivering a 517% gain for the shareholders who have held it for the past five years. But if the trajectory of these underlying trends continues, we don’t think the chances of this being a multi-bagger are high.

One final note: you need to learn about the 4 warning signs that we’ve seen with Career Point (including 1 that can’t be ignored).

For those who like to invest solid companies, take a look at this free list of companies with solid balance sheets and high returns on equity.

Valuation is complex, but we help make it simple.

Find out if Career Point may be over or undervalued by reviewing our comprehensive analysis, including: fair value estimates, risks and cautions, dividends, insider transactions and financial health.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.