Here's What's Concerning About LCI Industries' (NYSE:LCII) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think LCI Industries (NYSE:LCII) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 LCI Industries, this is the formula:

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

0.079 = US$205m ÷ (US$3.0b - US$432m) (Based on the trailing twelve months to September 2024).

So, LCI Industries has an ROCE of 7.9%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 11%.

View our latest analysis for LCI Industries

Above you can see how the current ROCE for LCI Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering LCI Industries for free.

What Does the ROCE Trend For LCI Industries Tell Us?

When we looked at the ROCE trend at LCI Industries, we didn't gain much confidence. To be more specific, ROCE has fallen from 17% over the last five years. However it looks like LCI Industries might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On LCI Industries' ROCE

To conclude, we've found that LCI Industries is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 35% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing to note, we've identified 1 warning sign with LCI Industries and understanding it should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.