Why The 34% Return On Capital At IES Holdings (NASDAQ:IESC) Should Have Your Attention

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at the ROCE trend of IES Holdings (NASDAQ:IESC) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 IES Holdings:

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

0.34 = US$225m ÷ (US$1.1b - US$434m) (Based on the trailing twelve months to March 2024).

Therefore, IES Holdings has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Construction industry average of 11%.

Check out our latest analysis for IES Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for IES Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of IES Holdings.

What Does the ROCE Trend For IES Holdings Tell Us?

Investors would be pleased with what's happening at IES Holdings. Over the last five years, returns on capital employed have risen substantially to 34%. The amount of capital employed has increased too, by 162%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From IES Holdings' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what IES Holdings has. And a remarkable 679% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

IES Holdings does have some risks though, and we've spotted 1 warning sign for IES Holdings that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com