- United States
The Returns At Comfort Systems USA (NYSE:FIX) 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Comfort Systems USA's (NYSE:FIX) ROCE trend, we were pretty happy with what we saw.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Comfort Systems USA:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$252m ÷ (US$2.6b - US$1.2b) (Based on the trailing twelve months to December 2022).
Thus, Comfort Systems USA has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Construction industry.
Check out our latest analysis for Comfort Systems USA
In the above chart we have measured Comfort Systems USA's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Comfort Systems USA here for free.
What The Trend Of ROCE Can Tell Us
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 181% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Comfort Systems USA has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
On a side note, Comfort Systems USA's current liabilities are still rather high at 45% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Bottom Line On Comfort Systems USA's ROCE
To sum it up, Comfort Systems USA has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 250% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
One more thing to note, we've identified 1 warning sign with Comfort Systems USA and understanding this should be part of your investment process.
While Comfort Systems USA 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.
Valuation is complex, but we're helping make it simple.
Find out whether Comfort Systems USA is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Comfort Systems USA
Comfort Systems USA, Inc. provides mechanical and electrical installation, renovation, maintenance, repair, and replacement services for the mechanical and electrical services industry in the United States.
Outstanding track record with excellent balance sheet.