U.S. markets closed
  • S&P 500

    3,841.94
    +73.47 (+1.95%)
     
  • Dow 30

    31,496.30
    +572.16 (+1.85%)
     
  • Nasdaq

    12,920.15
    +196.68 (+1.55%)
     
  • Russell 2000

    2,192.21
    +45.29 (+2.11%)
     
  • Crude Oil

    66.28
    +2.45 (+3.84%)
     
  • Gold

    1,698.20
    -2.50 (-0.15%)
     
  • Silver

    25.30
    -0.17 (-0.65%)
     
  • EUR/USD

    1.1916
    -0.0063 (-0.52%)
     
  • 10-Yr Bond

    1.5540
    +0.0040 (+0.26%)
     
  • GBP/USD

    1.3834
    -0.0060 (-0.43%)
     
  • USD/JPY

    108.3600
    +0.3840 (+0.36%)
     
  • BTC-USD

    49,665.46
    +963.11 (+1.98%)
     
  • CMC Crypto 200

    982.93
    +39.75 (+4.21%)
     
  • FTSE 100

    6,630.52
    -20.36 (-0.31%)
     
  • Nikkei 225

    28,864.32
    -65.78 (-0.23%)
     

Can Juniper Networks (NYSE:JNPR) Turn Things Around?

  • Oops!
    Something went wrong.
    Please try again later.
Simply Wall St
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.

What financial metrics can indicate to us that a company is maturing or even in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. And from a first read, things don't look too good at Juniper Networks (NYSE:JNPR), so let's see why.

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 Juniper Networks:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.065 = US$465m ÷ (US$8.7b - US$1.5b) (Based on the trailing twelve months to September 2020).

So, Juniper Networks has an ROCE of 6.5%. In absolute terms, that's a low return but it's around the Communications industry average of 7.8%.

Check out our latest analysis for Juniper Networks

roce
roce

Above you can see how the current ROCE for Juniper Networks compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Juniper Networks Tell Us?

In terms of Juniper Networks' historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 12% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Juniper Networks becoming one if things continue as they have.

In Conclusion...

In summary, it's unfortunate that Juniper Networks is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 13% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you want to continue researching Juniper Networks, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Juniper Networks 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.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.