The Returns At Gibraltar Industries (NASDAQ:ROCK) Aren't Growing
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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.
Understanding Return On Capital Employed (ROCE)
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 Gibraltar Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$171m ÷ (US$1.3b - US$264m) (Based on the trailing twelve months to March 2024).
Thus, Gibraltar Industries has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 17% generated by the Building industry.
View our latest analysis for Gibraltar Industries
Above you can see how the current ROCE for Gibraltar Industries 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 Gibraltar Industries for free.
So How Is Gibraltar Industries' ROCE Trending?
While the current returns on capital are decent, they haven't changed much. The company has employed 51% more capital in the last five years, and the returns on that capital have remained stable at 16%. 16% is a pretty standard return, and it provides some comfort knowing that Gibraltar Industries has consistently earned this amount. 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.
What We Can Learn From Gibraltar Industries' ROCE
In the end, Gibraltar Industries has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 86% return if they held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
If you're still interested in Gibraltar Industries it's worth checking out our FREE intrinsic value approximation for ROCK to see if it's trading at an attractive price in other respects.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com