Investors Shouldn't Overlook Inter Parfums' (NASDAQ:IPAR) Impressive Returns On Capital
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 the ROCE trend of Inter Parfums (NASDAQ:IPAR) we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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 Inter Parfums:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = US$251m ÷ (US$1.4b - US$325m) (Based on the trailing twelve months to December 2023).
So, Inter Parfums has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 16%.
Check out our latest analysis for Inter Parfums
In the above chart we have measured Inter Parfums' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Inter Parfums for free.
How Are Returns Trending?
The trends we've noticed at Inter Parfums are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 24%. Basically the business is earning more per dollar of capital invested and in addition to that, 72% more capital is being employed now too. So we're very much inspired by what we're seeing at Inter Parfums thanks to its ability to profitably reinvest capital.
The Bottom Line
In summary, it's great to see that Inter Parfums can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 100% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Inter Parfums can keep these trends up, it could have a bright future ahead.
On a separate note, we've found 2 warning signs for Inter Parfums you'll probably want to know about.
Inter Parfums is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
