Here's What To Make Of Nisun International Enterprise Development Group's (NASDAQ:NISN) Decelerating Rates Of Return
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. In light of that, when we looked at Nisun International Enterprise Development Group (NASDAQ:NISN) and its ROCE trend, we weren't exactly thrilled.
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. Analysts use this formula to calculate it for Nisun International Enterprise Development Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.092 = US$18m ÷ (US$283m - US$90m) (Based on the trailing twelve months to December 2022).
So, Nisun International Enterprise Development Group has an ROCE of 9.2%. In absolute terms, that's a low return but it's around the Software industry average of 8.5%.
Check out our latest analysis for Nisun International Enterprise Development Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for Nisun International Enterprise Development Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Nisun International Enterprise Development Group, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
The returns on capital haven't changed much for Nisun International Enterprise Development Group in recent years. Over the past five years, ROCE has remained relatively flat at around 9.2% and the business has deployed 367% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
The Bottom Line
In summary, Nisun International Enterprise Development Group has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 69% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Nisun International Enterprise Development Group has the makings of a multi-bagger.
One more thing: We've identified 4 warning signs with Nisun International Enterprise Development Group (at least 1 which can't be ignored) , and understanding these would certainly be useful.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
