The Return Trends At Perma-Pipe International Holdings (NASDAQ:PPIH) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Perma-Pipe International Holdings' (NASDAQ:PPIH) returns on capital, so let's have a look.

Understanding 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. Analysts use this formula to calculate it for Perma-Pipe International Holdings:

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

0.17 = US$16m ÷ (US$157m - US$59m) (Based on the trailing twelve months to April 2024).

Thus, Perma-Pipe International Holdings has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 13% it's much better.

Check out our latest analysis for Perma-Pipe International Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Perma-Pipe International Holdings' ROCE against it's prior returns. If you'd like to look at how Perma-Pipe International Holdings has performed in the past in other metrics, you can view this free graph of Perma-Pipe International Holdings' past earnings, revenue and cash flow.

How Are Returns Trending?

Investors would be pleased with what's happening at Perma-Pipe International Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The amount of capital employed has increased too, by 35%. So we're very much inspired by what we're seeing at Perma-Pipe International Holdings thanks to its ability to profitably reinvest capital.

The Bottom Line On Perma-Pipe International Holdings' ROCE

All in all, it's terrific to see that Perma-Pipe International Holdings is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 6.3% to shareholders. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 1 warning sign facing Perma-Pipe International Holdings that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.

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