Yahoo Finance Textainer Group Holdings (NYSE:TGH) Is Doing The Right Things To Multiply Its Share Price
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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So on that note, Textainer Group Holdings (NYSE:TGH) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
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 Textainer Group Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.066 = US$476m ÷ (US$7.6b - US$430m) (Based on the trailing twelve months to December 2022).
Therefore, Textainer Group Holdings has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 16%.
See our latest analysis for Textainer Group Holdings
Above you can see how the current ROCE for Textainer Group Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Does the ROCE Trend For Textainer Group Holdings Tell Us?
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 6.6%. The amount of capital employed has increased too, by 80%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Key Takeaway
All in all, it's terrific to see that Textainer Group Holdings is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 74% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.
On a final note, we found 3 warning signs for Textainer Group Holdings (2 make us uncomfortable) you should be aware of.
While Textainer Group Holdings 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.
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