Many Would Be Envious Of RELX's (LON:REL) Excellent Returns On Capital

What are the early trends we should look for to identify a stock that could 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of RELX (LON:REL) looks attractive right now, so lets see what the trend of returns can tell us.

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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 RELX:

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

0.30 = UK£2.8b ÷ (UK£15b - UK£5.7b) (Based on the trailing twelve months to December 2024).

Therefore, RELX has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

See our latest analysis for RELX

Above you can see how the current ROCE for RELX compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for RELX .

What Can We Tell From RELX's ROCE Trend?

In terms of RELX's history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 30% and the business has deployed 20% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If RELX can keep this up, we'd be very optimistic about its future.

What We Can Learn From RELX's ROCE

In short, we'd argue RELX has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 132% 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.

RELX does have some risks though, and we've spotted 1 warning sign for RELX that you might be interested in.

RELX is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.