There's Been No Shortage Of Growth Recently For Park Aerospace's (NYSE:PKE) 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? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Park Aerospace (NYSE:PKE) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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 Park Aerospace, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.079 = US$9.6m ÷ (US$129m - US$6.8m) (Based on the trailing twelve months to August 2023).
So, Park Aerospace has an ROCE of 7.9%. In absolute terms, that's a low return but it's around the Aerospace & Defense industry average of 9.5%.
Check out our latest analysis for Park Aerospace
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Park Aerospace's past further, check out this free graph of past earnings, revenue and cash flow.
What Can We Tell From Park Aerospace's ROCE Trend?
Park Aerospace has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 428% over the trailing five years. The company is now earning US$0.08 per dollar of capital employed. In regards to capital employed, Park Aerospace appears to been achieving more with less, since the business is using 24% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.
The Bottom Line
From what we've seen above, Park Aerospace has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has only returned 25% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
If you'd like to know more about Park Aerospace, we've spotted 2 warning signs, and 1 of them is significant.
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.
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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.
