Cooper-Standard Holdings (NYSE:CPS) Shareholders Will Want The ROCE Trajectory To Continue

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Cooper-Standard Holdings (NYSE:CPS) looks quite promising in regards to its trends of return on capital.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Cooper-Standard Holdings, this is the formula:

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

0.074 = US$86m ÷ (US$1.7b - US$577m) (Based on the trailing twelve months to December 2024).

So, Cooper-Standard Holdings has an ROCE of 7.4%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 11%.

See our latest analysis for Cooper-Standard Holdings

Above you can see how the current ROCE for Cooper-Standard Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Cooper-Standard Holdings .

The Trend Of ROCE

You'd find it hard not to be impressed with the ROCE trend at Cooper-Standard Holdings. The figures show that over the last five years, returns on capital have grown by 256%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 40% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line

In a nutshell, we're pleased to see that Cooper-Standard Holdings has been able to generate higher returns from less capital. And with a respectable 52% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Cooper-Standard Holdings can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Cooper-Standard Holdings we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While Cooper-Standard Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.