What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Although, when we looked at CCC Intelligent Solutions Holdings (NASDAQ:CCCS), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for CCC Intelligent Solutions Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.023 = US$66m ÷ (US$3.1b - US$147m) (Based on the trailing twelve months to June 2024).
Thus, CCC Intelligent Solutions Holdings has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Software industry average of 8.2%.
In the above chart we have measured CCC Intelligent Solutions Holdings' 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 CCC Intelligent Solutions Holdings .
What Can We Tell From CCC Intelligent Solutions Holdings' ROCE Trend?
Things have been pretty stable at CCC Intelligent Solutions Holdings, with its capital employed and returns on that capital staying somewhat the same for the last four years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at CCC Intelligent Solutions Holdings in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
The Key Takeaway
In a nutshell, CCC Intelligent Solutions Holdings has been trudging along with the same returns from the same amount of capital over the last four years. Additionally, the stock's total return to shareholders over the last three years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
One more thing, we've spotted 1 warning sign facing CCC Intelligent Solutions Holdings that you might find interesting.
While CCC Intelligent Solutions Holdings 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.