If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at Stride (NYSE:LRN) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
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. To calculate this metric for Stride, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$293m ÷ (US$2.0b - US$231m) (Based on the trailing twelve months to September 2024).
Therefore, Stride has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Consumer Services industry.
In the above chart we have measured Stride'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 analyst report for Stride .
What Does the ROCE Trend For Stride Tell Us?
We like the trends that we're seeing from Stride. The data shows that returns on capital have increased substantially over the last five years to 17%. The amount of capital employed has increased too, by 158%. So we're very much inspired by what we're seeing at Stride thanks to its ability to profitably reinvest capital.
The Bottom Line On Stride's ROCE
All in all, it's terrific to see that Stride is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Stride can keep these trends up, it could have a bright future ahead.
If you want to continue researching Stride, you might be interested to know about the 2 warning signs that our analysis has discovered.
While Stride 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.
