If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Logistec (TSE:LGT.B), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Logistec, this is the formula:

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

0.074 = CA$51m ÷ (CA$814m - CA$126m) (Based on the trailing twelve months to September 2020).

Thus, Logistec has an ROCE of 7.4%. On its own that's a low return, but compared to the average of 5.9% generated by the Infrastructure industry, it's much better.

Check out our latest analysis for Logistec

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

What Can We Tell From Logistec's ROCE Trend?

When we looked at the ROCE trend at Logistec, we didn't gain much confidence. To be more specific, ROCE has fallen from 14% over the last five years. However it looks like Logistec might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Logistec's ROCE

Bringing it all together, while we're somewhat encouraged by Logistec's reinvestment in its own business, we're aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 11% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Like most companies, Logistec does come with some risks, and we've found 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

This article by Simply Wall St is general in nature. 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.

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