Returns At Conduent (NASDAQ:CNDT) Appear To Be Weighed Down
To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Conduent (NASDAQ:CNDT), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Conduent, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.038 = US$88m ÷ (US$3.1b - US$805m) (Based on the trailing twelve months to September 2023).
Therefore, Conduent has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Professional Services industry average of 13%.
Check out our latest analysis for Conduent
In the above chart we have measured Conduent's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Conduent.
What Can We Tell From Conduent's ROCE Trend?
Over the past five years, Conduent's ROCE has remained relatively flat while the business is using 57% less capital than before. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.
The Bottom Line On Conduent's ROCE
In summary, Conduent isn't reinvesting funds back into the business and returns aren't growing. And in the last five years, the stock has given away 68% 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 Conduent has the makings of a multi-bagger.
Conduent does have some risks though, and we've spotted 1 warning sign for Conduent that you might be interested in.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
