Here's What To Make Of Garmin's (NYSE:GRMN) Decelerating Rates Of Return
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, the ROCE of Garmin (NYSE:GRMN) looks decent, right now, so lets see what the trend of returns can tell us.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Garmin:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$1.2b ÷ (US$8.6b - US$1.1b) (Based on the trailing twelve months to March 2024).
Therefore, Garmin has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 15% generated by the Consumer Durables industry.
See our latest analysis for Garmin
In the above chart we have measured Garmin's 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 Garmin for free.
So How Is Garmin's ROCE Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 61% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that Garmin has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Bottom Line On Garmin's ROCE
To sum it up, Garmin has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 146% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Garmin could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for GRMN on our platform quite valuable.
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.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com