If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. Having said that, after a brief look, Sensata Technologies Holding (NYSE:ST) we aren't filled with optimism, but let's investigate further.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Sensata Technologies Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.083 = US$564m ÷ (US$7.6b - US$794m) (Based on the trailing twelve months to March 2024).
So, Sensata Technologies Holding has an ROCE of 8.3%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 13%.
Above you can see how the current ROCE for Sensata Technologies Holding 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 analyst report for Sensata Technologies Holding .
The Trend Of ROCE
We are a bit worried about the trend of returns on capital at Sensata Technologies Holding. To be more specific, the ROCE was 11% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Sensata Technologies Holding to turn into a multi-bagger.
What We Can Learn From Sensata Technologies Holding's ROCE
All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. It should come as no surprise then that the stock has fallen 16% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
Sensata Technologies Holding does have some risks though, and we've spotted 1 warning sign for Sensata Technologies Holding that you might be interested in.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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
成熟したビジネスで成長期を過ぎた場合、浮かび上がる潜在的なトレンドのいくつかは何ですか? ほとんどの場合、資本運用利益率(ROCE)が低下し、資本運用額が減少する傾向にあります。つまり、会社は投資された1ドルあたりの利益が少なくなり、加えて資本運用の基盤を縮小しています。Carter(NYSE:CRI)を調べた後、上記のトレンドはあまり良く見えませんでした。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)」。資本雇用に対する収益率(ROCE)とは何ですか?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。資産全セクターからの利益が低下しており、総資産が減っていることを示しています。しかし、Sensata Technologies Holding(nyse:st)を簡単に見てみると、楽観的な気分になるわけではありませんが、さらに調査してみましょう。
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。