Slowing Rates Of Return At CSW Industrials (NASDAQ:CSWI) Leave Little Room For Excitement
What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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 ran our eye over CSW Industrials' (NASDAQ:CSWI) trend of ROCE, we liked what we saw.
Return On Capital Employed (ROCE): What is it?
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. Analysts use this formula to calculate it for CSW Industrials:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$87m ÷ (US$903m - US$86m) (Based on the trailing twelve months to September 2021).
Thus, CSW Industrials has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Building industry average it falls behind.
Check out our latest analysis for CSW Industrials
Above you can see how the current ROCE for CSW Industrials 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 CSW Industrials here for free.
So How Is CSW Industrials' ROCE Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 131% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Bottom Line
In the end, CSW Industrials has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 279% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
One more thing, we've spotted 4 warning signs facing CSW Industrials that you might find interesting.
While CSW Industrials isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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.
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