If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Having said that, from a first glance at Crane NXT (NYSE:CXT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is Return On Capital Employed (ROCE)?
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. To calculate this metric for Crane NXT, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$275m ÷ (US$2.1b - US$297m) (Based on the trailing twelve months to March 2024).
So, Crane NXT has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 11% it's much better.
Above you can see how the current ROCE for Crane NXT compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Crane NXT for free.
So How Is Crane NXT's ROCE Trending?
Things have been pretty stable at Crane NXT, with its capital employed and returns on that capital staying somewhat the same for the last two years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Crane NXT to be a multi-bagger going forward.
In Conclusion...
We can conclude that in regards to Crane NXT's returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 4.8% to shareholders over the last year. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
Like most companies, Crane NXT does come with some risks, and we've found 1 warning sign that you should be aware of.
While Crane NXT 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com