Stock Analysis

Returns on Capital Paint A Bright Future For Insteel Industries (NYSE:IIIN)

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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Insteel Industries (NYSE:IIIN) we really liked what we saw.

Understanding 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. The formula for this calculation on Insteel Industries is:

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

0.42 = US$162m ÷ (US$481m - US$95m) (Based on the trailing twelve months to July 2022).

So, Insteel Industries has an ROCE of 42%. In absolute terms that's a great return and it's even better than the Building industry average of 14%.

View our latest analysis for Insteel Industries

NYSE:IIIN Return on Capital Employed September 2nd 2022

Above you can see how the current ROCE for Insteel Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Insteel Industries here for free.

What Can We Tell From Insteel Industries' ROCE Trend?

Insteel Industries is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 42%. Basically the business is earning more per dollar of capital invested and in addition to that, 63% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Insteel Industries' ROCE

All in all, it's terrific to see that Insteel Industries is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 38% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Insteel Industries (of which 2 shouldn't be ignored!) that you should know about.

Insteel Industries is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Valuation is complex, but we're helping make it simple.

Find out whether Insteel Industries 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.

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Insteel Industries

Insteel Industries, Inc., together with its subsidiaries, manufactures and markets steel wire reinforcing products for concrete construction applications.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Future Growth0
Past Performance5
Financial Health6

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet with solid track record.