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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Nisun International Enterprise Development Group (NASDAQ:NISN) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Nisun International Enterprise Development Group:

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

0.12 = US$24m ÷ (US$269m - US$59m) (Based on the trailing twelve months to June 2024).

Therefore, Nisun International Enterprise Development Group has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 8.5% it's much better.

See our latest analysis for Nisun International Enterprise Development Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nisun International Enterprise Development Group's ROCE against it's prior returns. If you're interested in investigating Nisun International Enterprise Development Group's past further, check out this free graph covering Nisun International Enterprise Development Group's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Nisun International Enterprise Development Group has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 12% on its capital. Not only that, but the company is utilizing 480% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Nisun International Enterprise Development Group has decreased current liabilities to 22% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On Nisun International Enterprise Development Group's ROCE

In summary, it's great to see that Nisun International Enterprise Development Group has managed to break into profitability and is continuing to reinvest in its business. However the stock is down a substantial 87% in the last five years so there could be other areas of the business hurting its prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Nisun International Enterprise Development Group (of which 1 is concerning!) that you should know about.

While Nisun International Enterprise Development Group 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.