Yahoo Finance The Return Trends At UFP Technologies (NASDAQ:UFPT) Look Promising
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Speaking of which, we noticed some great changes in UFP Technologies' (NASDAQ:UFPT) 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. The formula for this calculation on UFP Technologies is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$62m ÷ (US$408m - US$52m) (Based on the trailing twelve months to March 2024).
Therefore, UFP Technologies has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 10% generated by the Medical Equipment industry.
Check out our latest analysis for UFP Technologies
In the above chart we have measured UFP Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering UFP Technologies for free.
What The Trend Of ROCE Can Tell Us
UFP Technologies is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 105%. So we're very much inspired by what we're seeing at UFP Technologies thanks to its ability to profitably reinvest capital.
The Key Takeaway
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what UFP Technologies has. And a remarkable 531% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for UFPT on our platform that is definitely worth checking out.
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.
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