Yahoo Finance Graco (NYSE:GGG) Looks To Prolong Its Impressive Returns
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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Graco's (NYSE:GGG) ROCE trend, we were very happy with what we saw.
Return On Capital Employed (ROCE): What is it?
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 Graco is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.27 = US$518m ÷ (US$2.4b - US$427m) (Based on the trailing twelve months to September 2021).
Thus, Graco has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Machinery industry average of 9.8%.
View our latest analysis for Graco
In the above chart we have measured Graco's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Graco.
What Can We Tell From Graco's ROCE Trend?
It's hard not to be impressed by Graco's returns on capital. The company has employed 57% more capital in the last five years, and the returns on that capital have remained stable at 27%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Graco can keep this up, we'd be very optimistic about its future.
In Conclusion...
In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 220% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
While Graco looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether GGG is currently trading for a fair price.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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.
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