Returns At Evoqua Water Technologies (NYSE:AQUA) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So on that note, Evoqua Water Technologies (NYSE:AQUA) looks quite promising in regards to its trends of return on capital.

What is 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. To calculate this metric for Evoqua Water Technologies, this is the formula:

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

0.086 = US$132m ÷ (US$1.9b - US$347m) (Based on the trailing twelve months to March 2021).

Thus, Evoqua Water Technologies has an ROCE of 8.6%. Even though it's in line with the industry average of 9.4%, it's still a low return by itself.

Check out our latest analysis for Evoqua Water Technologies

Above you can see how the current ROCE for Evoqua Water Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Evoqua Water Technologies.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 70% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Evoqua Water Technologies' 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 Evoqua Water Technologies has. Since the stock has returned a solid 67% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Evoqua Water Technologies does have some risks though, and we've spotted 4 warning signs for Evoqua Water Technologies that you might be interested in.

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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