Nasdaq
華爾街日報Returns On Capital Are Showing Encouraging Signs At Softfront Holdings (TSE:2321)
To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Softfront Holdings (TSE:2321) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on Softfront Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.017 = JP¥35m ÷ (JP¥2.2b - JP¥137m) (Based on the trailing twelve months to September 2025).
So, Softfront Holdings has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Software industry average of 18%.
See our latest analysis for Softfront Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Softfront Holdings' ROCE against it's prior returns. If you'd like to look at how Softfront Holdings has performed in the past in other metrics, you can view this free graph of Softfront Holdings' past earnings, revenue and cash flow.
The Trend Of ROCE
We're delighted to see that Softfront Holdings is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 1.7% which is a sight for sore eyes. Not only that, but the company is utilizing 540% 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.
What We Can Learn From Softfront Holdings' ROCE
Overall, Softfront Holdings gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a solid 63% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
On a final note, we found 4 warning signs for Softfront Holdings (3 can't be ignored) you should be aware of.
While Softfront Holdings 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.