The Returns At AGCO (NYSE:AGCO) Aren't Growing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So, when we ran our eye over AGCO's (NYSE:AGCO) trend of ROCE, we 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. Analysts use this formula to calculate it for AGCO:

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

0.12 = US$1.1b ÷ (US$14b - US$4.3b) (Based on the trailing twelve months to September 2024).

Therefore, AGCO has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

View our latest analysis for AGCO

In the above chart we have measured AGCO'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 AGCO .

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has employed 83% more capital in the last five years, and the returns on that capital have remained stable at 12%. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On AGCO's ROCE

To sum it up, AGCO has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 43% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for AGCO (of which 1 makes us a bit uncomfortable!) that you should know about.

While AGCO may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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

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.