Yahoo Finance TechTarget (NASDAQ:TTGT) Shareholders Will Want The ROCE Trajectory To Continue
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at TechTarget (NASDAQ:TTGT) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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 TechTarget:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.089 = US$64m ÷ (US$779m - US$60m) (Based on the trailing twelve months to September 2022).
So, TechTarget has an ROCE of 8.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.5%.
Check out our latest analysis for TechTarget
Above you can see how the current ROCE for TechTarget compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for TechTarget.
What The Trend Of ROCE Can Tell Us
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.9%. 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 396%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Key Takeaway
To sum it up, TechTarget has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
While TechTarget looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TTGT is currently trading for a fair price.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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