RPMGlobal Holdings (ASX:RUL) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So when we looked at RPMGlobal Holdings (ASX:RUL) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on RPMGlobal Holdings is:

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

0.13 = AU$8.7m ÷ (AU$106m - AU$41m) (Based on the trailing twelve months to December 2023).

Therefore, RPMGlobal Holdings has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

See our latest analysis for RPMGlobal Holdings

roce

In the above chart we have measured RPMGlobal Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for RPMGlobal Holdings .

How Are Returns Trending?

RPMGlobal Holdings' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 1,002% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 38% of the business, which is more than it was five years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

What We Can Learn From RPMGlobal Holdings' ROCE

To sum it up, RPMGlobal Holdings is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 302% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While RPMGlobal Holdings looks impressive, no company is worth an infinite price. The intrinsic value infographic for RUL helps visualize whether it is currently trading for a fair price.

While RPMGlobal Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.