Yahoo Finance Investors Will Want Viasat's (NASDAQ:VSAT) Growth In ROCE To Persist
What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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, Viasat (NASDAQ:VSAT) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Viasat, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0027 = US$16m ÷ (US$6.8b - US$851m) (Based on the trailing twelve months to December 2022).
Thus, Viasat has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Communications industry average of 11%.
See our latest analysis for Viasat
Above you can see how the current ROCE for Viasat 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 report for Viasat.
What Does the ROCE Trend For Viasat Tell Us?
We're delighted to see that Viasat is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 0.3% which is a sight for sore eyes. In addition to that, Viasat is employing 103% more capital than previously which is expected of a company that's 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.
The Key Takeaway
Long story short, we're delighted to see that Viasat's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 50% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.
Viasat does have some risks, we noticed 5 warning signs (and 2 which don't sit too well with us) we think you should know about.
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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