Yahoo Finance Cimpress' (NASDAQ:CMPR) Returns On Capital Are Heading Higher
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Cimpress (NASDAQ:CMPR) looks quite promising in regards to its trends of return on capital.
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 Cimpress:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.042 = US$62m ÷ (US$2.2b - US$693m) (Based on the trailing twelve months to June 2022).
Therefore, Cimpress has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 9.0%.
View our latest analysis for Cimpress
In the above chart we have measured Cimpress' 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 Cimpress here for free.
So How Is Cimpress' ROCE Trending?
While there are companies with higher returns on capital out there, we still find the trend at Cimpress promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 48% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
What We Can Learn From Cimpress' ROCE
To bring it all together, Cimpress has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 64% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
One final note, you should learn about the 2 warning signs we've spotted with Cimpress (including 1 which makes us a bit uncomfortable) .
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
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