We Like These Underlying Return On Capital Trends At Hubbell (NYSE:HUBB)

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Hubbell (NYSE:HUBB) so let's look a bit deeper.

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 Hubbell:

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

0.19 = US$1.0b ÷ (US$6.9b - US$1.3b) (Based on the trailing twelve months to June 2024).

So, Hubbell has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 13% generated by the Electrical industry.

View our latest analysis for Hubbell

In the above chart we have measured Hubbell's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Hubbell .

What Can We Tell From Hubbell's ROCE Trend?

Hubbell is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 35%. So we're very much inspired by what we're seeing at Hubbell thanks to its ability to profitably reinvest capital.

Our Take On Hubbell's ROCE

To sum it up, Hubbell has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 266% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Hubbell can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Hubbell 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.