Investors Will Want Lindsay's (NYSE:LNN) Growth In ROCE To Persist
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Lindsay (NYSE:LNN) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Lindsay is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$107m ÷ (US$724m - US$133m) (Based on the trailing twelve months to May 2023).
So, Lindsay has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 11% it's much better.
Check out our latest analysis for Lindsay
Above you can see how the current ROCE for Lindsay compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Lindsay here for free.
What Does the ROCE Trend For Lindsay Tell Us?
Lindsay is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 40% more capital is being employed now too. So we're very much inspired by what we're seeing at Lindsay thanks to its ability to profitably reinvest capital.
The Bottom Line On Lindsay's ROCE
All in all, it's terrific to see that Lindsay is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 54% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.
While Lindsay may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
