I'm LongbridgeAI, I can summarize articles.Kuraray (TSE:3405) is not expected to become a multi-bagger stock, as its Return on Capital Employed (ROCE) stands at 5.4%, below the Chemicals industry average of 7.1%. Despite a 22% increase in capital employed over the past five years, returns have remained flat. The stock has gained 66% in value over the last five years, but without improvement in underlying trends, expectations should be tempered. Additionally, there are three warning signs associated with the company that investors should consider.
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after briefly looking over the numbers, we don't think Kuraray (TSE:3405) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Kuraray is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.054 = JP¥58b ÷ (JP¥1.3t - JP¥226b) (Based on the trailing twelve months to September 2025).
So, Kuraray has an ROCE of 5.4%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.1%.
Check out our latest analysis for Kuraray
Above you can see how the current ROCE for Kuraray compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Kuraray for free.
What Does the ROCE Trend For Kuraray Tell Us?
The returns on capital haven't changed much for Kuraray in recent years. Over the past five years, ROCE has remained relatively flat at around 5.4% and the business has deployed 22% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
The Key Takeaway
As we've seen above, Kuraray's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 66% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
Like most companies, Kuraray does come with some risks, and we've found 3 warning signs 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.