Should We Be Excited About The Trends Of Returns At UIE (CPH:UIE)?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at UIE's (CPH:UIE) ROCE trend, we were pretty happy with what we saw.

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 UIE:

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

0.10 = US$111m ÷ (US$1.1b - US$46m) (Based on the trailing twelve months to December 2020).

Thus, UIE has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Food industry.

See our latest analysis for UIE

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

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 31% in that time. 10% is a pretty standard return, and it provides some comfort knowing that UIE has consistently earned this amount. 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.

The Key Takeaway

The main thing to remember is that UIE has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, UIE does come with some risks, and we've found 2 warning signs that you should be aware of.

While UIE 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. 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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