Returns Are Gaining Momentum At Franklin Electric (NASDAQ:FELE)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Franklin Electric (NASDAQ:FELE) and its trend of ROCE, 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. The formula for this calculation on Franklin Electric is:

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

0.18 = US$263m ÷ (US$1.7b - US$287m) (Based on the trailing twelve months to December 2023).

So, Franklin Electric has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 13% generated by the Machinery industry.

See our latest analysis for Franklin Electric

In the above chart we have measured Franklin Electric'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 Franklin Electric .

What Can We Tell From Franklin Electric's ROCE Trend?

We like the trends that we're seeing from Franklin Electric. The data shows that returns on capital have increased substantially over the last five years to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 56%. So we're very much inspired by what we're seeing at Franklin Electric thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Franklin Electric is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 120% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Franklin Electric can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Franklin Electric that we think you should be aware of.

While Franklin Electric 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.