In This Article:
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Graphic Packaging Holding (NYSE:GPK) so let's look a bit deeper.
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. To calculate this metric for Graphic Packaging Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = US$1.1b ÷ (US$11b - US$1.9b) (Based on the trailing twelve months to December 2024).
So, Graphic Packaging Holding has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 8.7% it's much better.
Check out our latest analysis for Graphic Packaging Holding
Above you can see how the current ROCE for Graphic Packaging Holding 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 analyst report for Graphic Packaging Holding .
The Trend Of ROCE
Graphic Packaging Holding is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 52% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
In Conclusion...
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Graphic Packaging Holding has. 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.
Graphic Packaging Holding does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.