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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Pure Storage's (NYSE:PSTG) returns on capital, so let's have a 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. Analysts use this formula to calculate it for Pure Storage:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.056 = US$133m ÷ (US$3.6b - US$1.2b) (Based on the trailing twelve months to May 2024).
Thus, Pure Storage has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Tech industry average of 8.3%.
In the above chart we have measured Pure Storage'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 Pure Storage .
How Are Returns Trending?
Pure Storage has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 5.6% on its capital. Not only that, but the company is utilizing 51% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 34% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.
The Bottom Line On Pure Storage's ROCE
Long story short, we're delighted to see that Pure Storage's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 312% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
One more thing, we've spotted 3 warning signs facing Pure Storage that you might find interesting.
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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我們對 Enphase Energy 的資本僱用回報率的看法:正如我們上面看到的,Enphase Energy 的資本回報率沒有提高,但它正在重新投資於業務。投資者必須認爲未來會有更好的前景,因爲股票表現良好,使持股五年以上的股東獲得了 690% 的收益。最終,如果基本趨勢持續存在,我們不會對它成爲一隻多頭股持有期很久很有信心。
Pure Storage最近實現了盈利,所以他們以前的投資似乎正在奏效。股東毫無疑問會對此感到高興,因爲該公司五年前還虧損,但現在在資本上實現了5.6%的回報。不僅如此,公司使用的資本比以前多了51%,但由於公司正在努力實現盈利,這是可以預期的。我們喜歡這個趨勢,因爲它告訴我們公司有盈利的再投資機會,並且如果它繼續前進,這將導致多賺錢的表現。