What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of PUMA (ETR:PUM) looks decent, right now, so lets see what the trend of returns can tell us.
Return On Capital Employed (ROCE): What Is It?
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 PUMA:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = €596m ÷ (€6.8b - €2.6b) (Based on the trailing twelve months to March 2024).
Therefore, PUMA has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Luxury industry average of 12%.
Check out our latest analysis for PUMA
Above you can see how the current ROCE for PUMA 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 PUMA for free.
What Does the ROCE Trend For PUMA Tell Us?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 57% in that time. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
In Conclusion...
In the end, PUMA has proven its ability to adequately reinvest capital at good rates of return. Yet over the last five years the stock has declined 20%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
PUMA does have some risks though, and we've spotted 1 warning sign for PUMA that you might be interested in.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.
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About XTRA:PUM
PUMA
Engages in the development and sale of athletic footwear, apparel, and accessories in Europe, the Middle East, Africa, the Americas, and the Asia Pacific.
Excellent balance sheet average dividend payer.
