Slowing Rates Of Return At Universal Electronics (NASDAQ:UEIC) Leave Little Room For Excitement
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Universal Electronics (NASDAQ:UEIC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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. The formula for this calculation on Universal Electronics is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = US$38m ÷ (US$511m - US$185m) (Based on the trailing twelve months to March 2021).
So, Universal Electronics has an ROCE of 12%. In isolation, that's a pretty standard return but against the Consumer Durables industry average of 15%, it's not as good.
See our latest analysis for Universal Electronics
Above you can see how the current ROCE for Universal Electronics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Universal Electronics.
What Does the ROCE Trend For Universal Electronics Tell Us?
Over the past five years, Universal Electronics' ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Universal Electronics to be a multi-bagger going forward.
In Conclusion...
In a nutshell, Universal Electronics has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 42% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
One more thing, we've spotted 2 warning signs facing Universal Electronics that you might find interesting.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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