What fundamental trends should you look for in a company to find multi-bagger stocks? Typically, you want to look at growth trends. return Return on Invested Capital (ROCE) and associated expansion base They invest 20% of the invested capital. This shows that the company is a compound interest machine and can continually reinvest earnings back into the business to generate higher returns. Rollins (NYSE:ROL), we were pleased with what we saw.
What is Return on Invested Capital (ROCE)?
For those unfamiliar, ROCE is a metric that assesses how much pre-tax profit (as a percentage) a company earned on the capital invested in its business. For Rollins, the formula for calculating this metric is:
Return on Invested Capital = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)
0.30 = US$612 million ÷ (US$2.7 billion – US$592 million) (Based on the trailing 12 months ending March 2024).
therefore, Rollins has an ROCE of 30%. In absolute terms, this is an excellent return and better than the Commercial Services industry average of 9.8%.
See our latest analysis for Rollins
In the chart above we’ve measured Rollins’ prior ROCE against its previous performance, but the future is arguably more important: if you want to see what analysts are predicting going forward you can take a look at this free analyst report on Rollins.
What can we learn from ROCE trends?
Rollins deserves praise for its profitability. The company has deployed over 125% of its capital over the past five years, and its return on capital has remained steady at 30%. Given that the ROCE is an attractive 30%, this combination is actually quite attractive, as the business is able to continue to deploy capital and generate high returns. This can be seen when looking at a well-run business and favorable business model.
The conclusion is…
After all, the company has proven it can reinvest capital at a high rate of return, which you know is the hallmark of a multi-bagger. On top of that, this stock has rewarded shareholders who held over the past five years with an astounding return of 102%. So, while the stock may be “expensive” than it was before, we believe the strong fundamentals make this stock worth investigating further.
But before jumping to any conclusions, we need to know what value we’re getting at the current share price. Free estimate of ROL’s intrinsic value Compare the stock price to the estimated value.
Rollins isn’t the only stock making a profit. Want to learn more? free A list of companies with solid fundamentals and high return on equity.
Valuation is complicated, but we can help make it simple.
To find out if Rollins is overrated or underrated, check out our comprehensive analysis. Fair value estimates, risks and warnings, dividends, insider trading, financial strength.
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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
