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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at Axon Enterprise (NASDAQ:AXON) and its trend of ROCE, we really liked what we saw.
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. Analysts use this formula to calculate it for Axon Enterprise:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.022 = US$77m ÷ (US$4.5b - US$998m) (Based on the trailing twelve months to December 2024).
So, Axon Enterprise has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Aerospace & Defense industry average of 9.6%.
View our latest analysis for Axon Enterprise
In the above chart we have measured Axon Enterprise'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 Axon Enterprise .
How Are Returns Trending?
We're delighted to see that Axon Enterprise is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 2.2% which is a sight for sore eyes. In addition to that, Axon Enterprise is employing 435% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
Our Take On Axon Enterprise's ROCE
Long story short, we're delighted to see that Axon Enterprise's reinvestment activities have paid off and the company is now profitable. And a remarkable 801% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.