Will the Promising Trends At Live Ventures (NASDAQ:LIVE) Continue?
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Live Ventures (NASDAQ:LIVE) looks quite promising in regards to its trends of return on capital.
What is 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. To calculate this metric for Live Ventures, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.077 = US$7.9m ÷ (US$156m - US$54m) (Based on the trailing twelve months to June 2020).
Thus, Live Ventures has an ROCE of 7.7%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 13%.
Check out our latest analysis for Live Ventures
Historical performance is a great place to start when researching a stock so above you can see the gauge for Live Ventures' ROCE against it's prior returns. If you're interested in investigating Live Ventures' past further, check out this free graph of past earnings, revenue and cash flow.
So How Is Live Ventures' ROCE Trending?
The fact that Live Ventures is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 7.7% on its capital. And unsurprisingly, like most companies trying to break into the black, Live Ventures is utilizing 788% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Bottom Line
In summary, it's great to see that Live Ventures has managed to break into profitability and is continuing to reinvest in its business. Since the stock has only returned 20% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
One final note, you should learn about the 2 warning signs we've spotted with Live Ventures (including 1 which is is concerning) .
While Live Ventures 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.
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