Investors Should Be Encouraged By Janus International Group's (NYSE:JBI) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Janus International Group (NYSE:JBI) we really liked 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. To calculate this metric for Janus International Group, this is the formula:

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

0.21 = US$251m ÷ (US$1.4b - US$160m) (Based on the trailing twelve months to March 2024).

Thus, Janus International Group has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Building industry average of 17%.

View our latest analysis for Janus International Group

In the above chart we have measured Janus International Group'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 Janus International Group .

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Janus International Group are quite reassuring. Over the last four years, returns on capital employed have risen substantially to 21%. The amount of capital employed has increased too, by 54%. So we're very much inspired by what we're seeing at Janus International Group thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Janus International Group is reaping the rewards from prior investments and is growing its capital base. Since the total return from the stock has been almost flat over the last three years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing, we've spotted 1 warning sign facing Janus International Group that you might find interesting.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.