Yahoo Finance Will The ROCE Trend At Weibo (NASDAQ:WB) Continue?
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Weibo's (NASDAQ:WB) returns on capital, so let's have a look.
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. The formula for this calculation on Weibo is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.092 = US$476m ÷ (US$6.0b - US$832m) (Based on the trailing twelve months to September 2020).
So, Weibo has an ROCE of 9.2%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 12%.
View our latest analysis for Weibo
In the above chart we have measured Weibo'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 report on analyst forecasts for the company.
The Trend Of ROCE
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.2%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 750%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
In Conclusion...
All in all, it's terrific to see that Weibo is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 152% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Weibo can keep these trends up, it could have a bright future ahead.
On a final note, we've found 1 warning sign for Weibo that we think you should be aware of.
While Weibo isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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