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. However, after briefly looking over the numbers, we don't think Kelly Partners Group Holdings (ASX:KPG) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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. To calculate this metric for Kelly Partners Group Holdings, this is the formula:

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

0.19 = AU$23m ÷ (AU$159m - AU$38m) (Based on the trailing twelve months to June 2024).

So, Kelly Partners Group Holdings has an ROCE of 19%. By itself that's a normal return on capital and it's in line with the industry's average returns of 19%.

Check out our latest analysis for Kelly Partners Group Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kelly Partners Group Holdings' ROCE against it's prior returns. If you'd like to look at how Kelly Partners Group Holdings has performed in the past in other metrics, you can view this free graph of Kelly Partners Group Holdings' past earnings, revenue and cash flow.

What Can We Tell From Kelly Partners Group Holdings' ROCE Trend?

In terms of Kelly Partners Group Holdings' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 25% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

While returns have fallen for Kelly Partners Group Holdings in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 802% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.