The Underlying Trends At Honeywell Automation India (NSE:HONAUT) Look Strong

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. That's why when we briefly looked at Honeywell Automation India's (NSE:HONAUT) ROCE trend, we were very happy with what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Honeywell Automation India:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.24 = ₹5.5b ÷ (₹35b - ₹12b) (Based on the trailing twelve months to June 2020).

So, Honeywell Automation India has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

See our latest analysis for Honeywell Automation India

Historical performance is a great place to start when researching a stock so above you can see the gauge for Honeywell Automation India's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Honeywell Automation India, check out these free graphs here.

So How Is Honeywell Automation India's ROCE Trending?

It's hard not to be impressed by Honeywell Automation India's returns on capital. The company has consistently earned 24% for the last five years, and the capital employed within the business has risen 152% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

In Conclusion...

Honeywell Automation India has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has done incredibly well with a 266% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

While Honeywell Automation India looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HONAUT is currently trading for a fair price.

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. 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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