Here's What MIND C.T.I's (NASDAQ:MNDO) Strong Returns On Capital Mean
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Ergo, when we looked at the ROCE trends at MIND C.T.I (NASDAQ:MNDO), we liked what we saw.
What Is 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. The formula for this calculation on MIND C.T.I is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = US$5.2m ÷ (US$33m - US$9.8m) (Based on the trailing twelve months to March 2023).
Thus, MIND C.T.I has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Software industry average of 9.4%.
Check out our latest analysis for MIND C.T.I
Historical performance is a great place to start when researching a stock so above you can see the gauge for MIND C.T.I's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of MIND C.T.I, check out these free graphs here.
So How Is MIND C.T.I's ROCE Trending?
We'd be pretty happy with returns on capital like MIND C.T.I. The company has consistently earned 23% for the last five years, and the capital employed within the business has risen 24% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
The Bottom Line
MIND C.T.I has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Therefore it's no surprise that shareholders have earned a respectable 53% return if they held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
MIND C.T.I does have some risks, we noticed 3 warning signs (and 2 which are concerning) we think you should know about.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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