PHINIA (NYSE:PHIN) Has Some Way To Go To Become A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Having said that, from a first glance at PHINIA (NYSE:PHIN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

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 PHINIA:

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

0.11 = US$318m ÷ (US$3.8b - US$969m) (Based on the trailing twelve months to December 2024).

Therefore, PHINIA has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

See our latest analysis for PHINIA

Above you can see how the current ROCE for PHINIA 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 PHINIA for free.

How Are Returns Trending?

There hasn't been much to report for PHINIA's returns and its level of capital employed because both metrics have been steady for the past three years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if PHINIA doesn't end up being a multi-bagger in a few years time.

In Conclusion...

In summary, PHINIA isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 35% over the last year, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a separate note, we've found 1 warning sign for PHINIA you'll probably want to know about.

While PHINIA 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.