In This Article:
What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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, we've noticed some promising trends at Universal Stainless & Alloy Products (NASDAQ:USAP) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Universal Stainless & Alloy Products, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.091 = US$29m ÷ (US$368m - US$48m) (Based on the trailing twelve months to June 2024).
Thus, Universal Stainless & Alloy Products has an ROCE of 9.1%. Even though it's in line with the industry average of 9.0%, it's still a low return by itself.
View our latest analysis for Universal Stainless & Alloy Products
In the above chart we have measured Universal Stainless & Alloy Products' 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 Universal Stainless & Alloy Products .
How Are Returns Trending?
Universal Stainless & Alloy Products' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 144% in that same time. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
Our Take On Universal Stainless & Alloy Products' ROCE
To bring it all together, Universal Stainless & Alloy Products has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 137% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.