Will Natural Alternatives International (NASDAQ:NAII) Multiply In Value Going Forward?
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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 investigating Natural Alternatives International (NASDAQ:NAII), we don't think it's current trends fit the mold of a multi-bagger.
What is Return On Capital Employed (ROCE)?
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. The formula for this calculation on Natural Alternatives International is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.029 = US$2.6m ÷ (US$129m - US$37m) (Based on the trailing twelve months to September 2020).
So, Natural Alternatives International has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Personal Products industry average of 15%.
See our latest analysis for Natural Alternatives International
Historical performance is a great place to start when researching a stock so above you can see the gauge for Natural Alternatives International's ROCE against it's prior returns. If you'd like to look at how Natural Alternatives International has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
In terms of Natural Alternatives International's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 16%, but since then they've fallen to 2.9%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
The Bottom Line On Natural Alternatives International's ROCE
To conclude, we've found that Natural Alternatives International is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 34% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
One more thing: We've identified 6 warning signs with Natural Alternatives International (at least 1 which can't be ignored) , and understanding them would certainly be useful.
While Natural Alternatives International may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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