If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 Snap One Holdings (NASDAQ:SNPO) so let's look a bit deeper.
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. To calculate this metric for Snap One Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.019 = US$27m ÷ (US$1.6b - US$170m) (Based on the trailing twelve months to September 2023).
So, Snap One Holdings has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 14%.
View our latest analysis for Snap One Holdings
Above you can see how the current ROCE for Snap One Holdings 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 report for Snap One Holdings.
What Does the ROCE Trend For Snap One Holdings Tell Us?
While there are companies with higher returns on capital out there, we still find the trend at Snap One Holdings promising. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 93% over the last three years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Key Takeaway
To bring it all together, Snap One Holdings has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 7.1% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
While Snap One Holdings looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SNPO is currently trading for a fair price.