To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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, the ROCE of W.W. Grainger (NYSE:GWW) looks great, so lets see what the trend can tell us.
Understanding 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. The formula for this calculation on W.W. Grainger is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.44 = US$2.6b ÷ (US$8.4b - US$2.5b) (Based on the trailing twelve months to March 2024).
Thus, W.W. Grainger has an ROCE of 44%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.
NYSE:GWW Return on Capital Employed June 23rd 2024
Above you can see how the current ROCE for W.W. Grainger 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 W.W. Grainger for free.
So How Is W.W. Grainger's ROCE Trending?
Investors would be pleased with what's happening at W.W. Grainger. Over the last five years, returns on capital employed have risen substantially to 44%. Basically the business is earning more per dollar of capital invested and in addition to that, 29% more capital is being employed now too. 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.
In Conclusion...
In summary, it's great to see that W.W. Grainger can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
One more thing to note, we've identified 1 warning sign with W.W. Grainger and understanding it should be part of your investment process.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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
モノリシックパワーシステムズのような株を見つけるために、ビジネスにおいて求めるべき基本的なトレンドとは何でしょうか? その他のことに加えて、2つのことを見たいと思うでしょう。まず第一に、成長していることです。資本利回り (ROCE)とは何ですか?わからない方には、ROCEは企業が事業に使用する資本から、税引き前利益をどれだけ生成できるかを測定します。アナリストは以下の式を使用して、Bumi Armada BerhadのROCEを計算します。「ROCE = 利息や税金を除いた利益 (EBIT) ÷ (総資産 - 流動負債)」。ROCEが成長するのは、事業に投下される資本が成長していることを意味し、Coupangが投下資本の拡大に取り組んでいることを示しています。Bumi Armada Berhadが前のROCEと前のパフォーマンスを比較した上図では、将来のROCEがより重要であるとされています。もし興味がある場合は、Bumi Armada Berhadの無料アナリストレポートをご覧いただけます。投入資本の複利化のビジネスでは、継続的に高いリターン率で利益を再投資しています。 この観点からW.W. Grainger(NYSE:GWW)のROCEは素晴らしいですので、トレンドを見てみましょう。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。