In This Article:
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Legacy Housing (NASDAQ:LEGH) looks decent, right now, so lets see what the trend of returns can tell us.
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. The formula for this calculation on Legacy Housing is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = US$58m ÷ (US$521m - US$32m) (Based on the trailing twelve months to September 2024).
Therefore, Legacy Housing has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Durables industry average of 14%.
View our latest analysis for Legacy Housing
In the above chart we have measured Legacy Housing's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Legacy Housing .
What Does the ROCE Trend For Legacy Housing Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 114% more capital in the last five years, and the returns on that capital have remained stable at 12%. 12% is a pretty standard return, and it provides some comfort knowing that Legacy Housing has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Key Takeaway
In the end, Legacy Housing has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
If you're still interested in Legacy Housing it's worth checking out our FREE intrinsic value approximation for LEGH to see if it's trading at an attractive price in other respects.