Yahoo Finance WD-40 (NASDAQ:WDFC) Is Reinvesting To Multiply In Value
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of WD-40 (NASDAQ:WDFC) looks attractive right now, so lets see what the trend of returns can tell us.
Understanding 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 WD-40 is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = US$94m ÷ (US$442m - US$110m) (Based on the trailing twelve months to February 2024).
Thus, WD-40 has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Household Products industry average of 20%.
Check out our latest analysis for WD-40
Above you can see how the current ROCE for WD-40 compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering WD-40 for free.
What The Trend Of ROCE Can Tell Us
WD-40 deserves to be commended in regards to it's returns. The company has consistently earned 28% for the last five years, and the capital employed within the business has risen 42% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If WD-40 can keep this up, we'd be very optimistic about its future.
What We Can Learn From WD-40's ROCE
WD-40 has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Therefore it's no surprise that shareholders have earned a respectable 48% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for WDFC that compares the share price and estimated value.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.
