Yahoo Finance Here's What To Make Of ReposiTrak's (NYSE:TRAK) Decelerating Rates Of Return
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after briefly looking over the numbers, we don't think ReposiTrak (NYSE:TRAK) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for ReposiTrak:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$5.1m ÷ (US$50m - US$4.3m) (Based on the trailing twelve months to December 2023).
Thus, ReposiTrak has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.3% generated by the Software industry.
See our latest analysis for ReposiTrak
Historical performance is a great place to start when researching a stock so above you can see the gauge for ReposiTrak's ROCE against it's prior returns. If you'd like to look at how ReposiTrak has performed in the past in other metrics, you can view this free graph of ReposiTrak's past earnings, revenue and cash flow.
What Can We Tell From ReposiTrak's ROCE Trend?
Over the past five years, ReposiTrak's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if ReposiTrak doesn't end up being a multi-bagger in a few years time.
The Bottom Line
We can conclude that in regards to ReposiTrak's returns on capital employed and the trends, there isn't much change to report on. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 108% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
If you're still interested in ReposiTrak it's worth checking out our FREE intrinsic value approximation for TRAK to see if it's trading at an attractive price in other respects.
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.
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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.
