Yahoo Finance Return Trends At TE Connectivity (NYSE:TEL) Aren't Appealing
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after investigating TE Connectivity (NYSE:TEL), we don't think it's current trends fit the mold of a multi-bagger.
Understanding 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 TE Connectivity:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$2.8b ÷ (US$23b - US$5.2b) (Based on the trailing twelve months to March 2024).
So, TE Connectivity has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 11% it's much better.
View our latest analysis for TE Connectivity
In the above chart we have measured TE Connectivity's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for TE Connectivity .
How Are Returns Trending?
Things have been pretty stable at TE Connectivity, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at TE Connectivity in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
Our Take On TE Connectivity's ROCE
We can conclude that in regards to TE Connectivity's returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 78% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
One more thing, we've spotted 1 warning sign facing TE Connectivity that you might find interesting.
While TE Connectivity 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.
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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.
