Yahoo Finance Upwork (NASDAQ:UPWK) Shareholders Will Want The ROCE Trajectory To Continue
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So when we looked at Upwork (NASDAQ:UPWK) and its trend of ROCE, we really liked what we saw.
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. Analysts use this formula to calculate it for Upwork:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.038 = US$27m ÷ (US$1.0b - US$289m) (Based on the trailing twelve months to March 2024).
Thus, Upwork has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 14%.
See our latest analysis for Upwork
Above you can see how the current ROCE for Upwork 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 analyst report for Upwork .
The Trend Of ROCE
Upwork has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 3.8% which is a sight for sore eyes. Not only that, but the company is utilizing 170% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
One more thing to note, Upwork has decreased current liabilities to 29% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
The Key Takeaway
Long story short, we're delighted to see that Upwork's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 33% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
While Upwork looks impressive, no company is worth an infinite price. The intrinsic value infographic for UPWK helps visualize whether it is currently trading for a fair price.
While Upwork isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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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