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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of YouGov (LON:YOU) we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for YouGov:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.30 = UK£46m ÷ (UK£243m - UK£88m) (Based on the trailing twelve months to January 2023).
So, YouGov has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Media industry average of 11%.
See our latest analysis for YouGov
In the above chart we have measured YouGov's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering YouGov here for free.
The Trend Of ROCE
Investors would be pleased with what's happening at YouGov. The data shows that returns on capital have increased substantially over the last five years to 30%. The amount of capital employed has increased too, by 80%. So we're very much inspired by what we're seeing at YouGov thanks to its ability to profitably reinvest capital.
The Key Takeaway
In summary, it's great to see that YouGov can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 110% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
On a separate note, we've found 1 warning sign for YouGov you'll probably want to know about.
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. 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.
About AIM:YOU
YouGov
Provides online market research services in the United Kingdom, the Americas, the Middle East, Mainland Europe, Africa, and the Asia Pacific.
High growth potential and fair value.
