There's Been No Shortage Of Growth Recently For TechTarget's (NASDAQ:TTGT) Returns On Capital
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, TechTarget (NASDAQ:TTGT) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for TechTarget, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.087 = US$62m ÷ (US$765m - US$58m) (Based on the trailing twelve months to December 2022).
Therefore, TechTarget has an ROCE of 8.7%. In absolute terms, that's a low return but it's around the Media industry average of 9.5%.
See our latest analysis for TechTarget
Above you can see how the current ROCE for TechTarget 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 TechTarget Tell Us?
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 8.7%. The amount of capital employed has increased too, by 374%. So we're very much inspired by what we're seeing at TechTarget thanks to its ability to profitably reinvest capital.
Our Take On TechTarget's ROCE
To sum it up, TechTarget has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 53% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if TechTarget can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing TechTarget, we've discovered 2 warning signs that you should be aware of.
While TechTarget 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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