Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0781
    -0.0013 (-0.12%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • GBP/USD

    1.2625
    +0.0003 (+0.02%)
     
  • USD/JPY

    151.3450
    -0.0270 (-0.02%)
     
  • Bitcoin USD

    70,066.02
    -548.88 (-0.78%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,369.44
    +201.37 (+0.50%)
     

Why We Like The Returns At Shutterstock (NYSE:SSTK)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Shutterstock's (NYSE:SSTK) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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 Shutterstock, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.22 = US$106m ÷ (US$796m - US$304m) (Based on the trailing twelve months to March 2022).

So, Shutterstock has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

View our latest analysis for Shutterstock

roce
roce

In the above chart we have measured Shutterstock's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

We like the trends that we're seeing from Shutterstock. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 69%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Shutterstock's ROCE

To sum it up, Shutterstock has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 62% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Shutterstock, you might be interested to know about the 2 warning signs that our analysis has discovered.

Shutterstock is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.

Advertisement