If you’re looking for a multibagger, there are a few things to keep in mind. One common approach is to look for companies that: Return value Capital employed increasing with growth (ROCE) amount of capital employed. After all, this shows that this is a business that is increasing its profitability and reinvesting its profits. Therefore, when we looked at the trends in ROCE; Fastenal (NASDAQ:FAST), we liked what we saw.
About Return on Capital Employed (ROCE)
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (return) on the capital employed in the business. To calculate this metric for Fastenal, use the following formula:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.39 = USD 1.5 billion ÷ (USD 4.5 billion – USD 638 million) (Based on the previous 12 months to March 2024).
So, Fastenal’s ROCE is 39%. That’s an impressive return, and not only that, but it’s also higher than the average 13% earned by companies in similar industries.
Check out our latest analysis for Fastenal.
Above we show how Fastenal’s current ROCE compares to its previous return on equity, but the past can only tell us so much. If you wish, check out what the analysts covering Fastenal are forecasting. free.
What can we learn from Fastenal’s ROCE trend?
Fastenal deserves praise for its return. The company has deployed 26% more capital over the past five years, and its return on capital has held steady at 39%. A return like this would be the envy of most companies, and it’s even better considering it has been repeatedly reinvested at such rates. If Fastenal can keep this up, we’ll be very optimistic about its future.
What we can learn from Fastenal’s ROCE
In summary, we’re pleased to see that Fastenal is doubling its earnings by reinvesting at consistently high rates of return. Because this is a common feature of multibaggers. On top of that, the stock has returned an impressive 139% to shareholders over the past five years. So while investors seem to be aware of these encouraging trends, they still think this stock deserves further research.
But before you jump to any conclusions, you need to know what value you’re getting from the current share price.Check out ours there Free estimate of FAST’s intrinsic value Compare stock prices and estimated values.
Fastenal isn’t the only stock with strong returns.If you want to know more, check here free A list of companies that achieve high return on equity due to solid fundamentals.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
