If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Waste Connections (NYSE:WCN), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Waste Connections, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.088 = US$1.4b ÷ (US$18b - US$1.6b) (Based on the trailing twelve months to September 2023).

Therefore, Waste Connections has an ROCE of 8.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.9%.

Check out our latest analysis for Waste Connections

Above you can see how the current ROCE for Waste Connections 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 Waste Connections.

What Does the ROCE Trend For Waste Connections Tell Us?

There are better returns on capital out there than what we're seeing at Waste Connections. The company has employed 42% more capital in the last five years, and the returns on that capital have remained stable at 8.8%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Waste Connections' ROCE

As we've seen above, Waste Connections' returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 77% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Waste Connections, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Waste Connections isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.