To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. In light of that, when we looked at Akamai Technologies (NASDAQ:AKAM) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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 Akamai Technologies, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.081 = US$667m ÷ (US$10b - US$2.0b) (Based on the trailing twelve months to September 2024).

Therefore, Akamai Technologies has an ROCE of 8.1%. In absolute terms, that's a low return and it also under-performs the IT industry average of 10%.

In the above chart we have measured Akamai Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Akamai Technologies for free.

So How Is Akamai Technologies' ROCE Trending?

There are better returns on capital out there than what we're seeing at Akamai Technologies. The company has employed 43% more capital in the last five years, and the returns on that capital have remained stable at 8.1%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Akamai Technologies' ROCE

In summary, Akamai Technologies has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 3.0% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Akamai Technologies could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for AKAM on our platform quite valuable.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.