Yahoo Finance Lindsay (NYSE:LNN) Shareholders Will Want The ROCE Trajectory To Continue
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Lindsay (NYSE:LNN) so let's look a bit deeper.
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. Analysts use this formula to calculate it for Lindsay:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$93m ÷ (US$765m - US$129m) (Based on the trailing twelve months to February 2024).
Thus, Lindsay has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 13% generated by the Machinery industry.
Check out our latest analysis for Lindsay
Above you can see how the current ROCE for Lindsay compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Lindsay for free.
So How Is Lindsay's ROCE Trending?
The trends we've noticed at Lindsay are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 52% more capital is being employed now too. So we're very much inspired by what we're seeing at Lindsay thanks to its ability to profitably reinvest capital.
The Bottom Line
To sum it up, Lindsay has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 56% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Lindsay can keep these trends up, it could have a bright future ahead.
While Lindsay looks impressive, no company is worth an infinite price. The intrinsic value infographic for LNN helps visualize whether it is currently trading for a fair price.
While Lindsay 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.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
