What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, TaskUs (NASDAQ:TASK) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for TaskUs:

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

0.15 = US$112m ÷ (US$886m - US$117m) (Based on the trailing twelve months to June 2024).

So, TaskUs has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Professional Services industry average of 14%.

Above you can see how the current ROCE for TaskUs compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for TaskUs .

So How Is TaskUs' ROCE Trending?

TaskUs is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 38%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On TaskUs' ROCE

To sum it up, TaskUs has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 66% in the last three years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for TASK on our platform that is definitely worth checking out.

While TaskUs 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.