Yahoo Finance Here's What To Make Of Gibraltar Industries' (NASDAQ:ROCK) Decelerating Rates Of Return
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Gibraltar Industries' (NASDAQ:ROCK) trend of ROCE, we liked what we saw.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Gibraltar Industries, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = US$116m ÷ (US$1.2b - US$280m) (Based on the trailing twelve months to September 2021).
Thus, Gibraltar Industries has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 14% generated by the Building industry.
View our latest analysis for Gibraltar Industries
In the above chart we have measured Gibraltar Industries' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Gibraltar Industries.
What The Trend Of ROCE Can Tell Us
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 22% in that time. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On Gibraltar Industries' ROCE
To sum it up, Gibraltar Industries has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 76% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Gibraltar Industries could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.
While Gibraltar Industries 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.
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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