Return Trends At WiseTech Global (ASX:WTC) Aren't Appealing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over WiseTech Global's (ASX:WTC) trend of ROCE, we liked what we saw.

What Is 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. To calculate this metric for WiseTech Global, this is the formula:

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

0.16 = AU$328m ÷ (AU$2.7b - AU$581m) (Based on the trailing twelve months to June 2023).

Thus, WiseTech Global has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 11% it's much better.

Check out our latest analysis for WiseTech Global

In the above chart we have measured WiseTech Global's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for WiseTech Global.

What Can We Tell From WiseTech Global's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has employed 354% more capital in the last five years, and the returns on that capital have remained stable at 16%. 16% is a pretty standard return, and it provides some comfort knowing that WiseTech Global has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

To sum it up, WiseTech Global has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 279% return they've received 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.

WiseTech Global could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While WiseTech Global may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.