Slowing Rates Of Return At Kingspan Group (ISE:KRX) Leave Little Room For Excitement

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Kingspan Group (ISE:KRX) looks decent, 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?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Kingspan Group:

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

0.12 = €887m ÷ (€9.8b - €2.2b) (Based on the trailing twelve months to June 2025).

Therefore, Kingspan Group has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Building industry average of 10%.

View our latest analysis for Kingspan Group

In the above chart we have measured Kingspan Group'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 analyst report for Kingspan Group .

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. The company has employed 111% more capital in the last five years, and the returns on that capital have remained stable at 12%. 12% is a pretty standard return, and it provides some comfort knowing that Kingspan Group 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 Bottom Line

In the end, Kingspan Group has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 6.1% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

Kingspan Group does have some risks though, and we've spotted 2 warning signs for Kingspan Group that you might be interested in.

While Kingspan Group 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.