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If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Copart (NASDAQ:CPRT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Copart:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = US$1.6b ÷ (US$9.2b - US$630m) (Based on the trailing twelve months to January 2025).
So, Copart has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 11% it's much better.
View our latest analysis for Copart
In the above chart we have measured Copart's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Copart .
How Are Returns Trending?
On the surface, the trend of ROCE at Copart doesn't inspire confidence. Around five years ago the returns on capital were 30%, but since then they've fallen to 19%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
Our Take On Copart's ROCE
While returns have fallen for Copart in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And long term investors must be optimistic going forward because the stock has returned a huge 223% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.
Copart could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for CPRT on our platform quite valuable.