If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Having said that, from a first glance at Loar Holdings (NYSE:LOAR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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. Analysts use this formula to calculate it for Loar Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.074 = US$108m ÷ (US$1.5b - US$46m) (Based on the trailing twelve months to June 2025).
So, Loar Holdings has an ROCE of 7.4%. Ultimately, that's a low return and it under-performs the Aerospace & Defense industry average of 9.6%.
Check out our latest analysis for Loar Holdings
Above you can see how the current ROCE for Loar Holdings 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 Loar Holdings for free.
What Does the ROCE Trend For Loar Holdings Tell Us?
In terms of Loar Holdings' historical ROCE trend, it doesn't exactly demand attention. The company has employed 49% more capital in the last two years, and the returns on that capital have remained stable at 7.4%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
The Bottom Line On Loar Holdings' ROCE
As we've seen above, Loar Holdings' returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 11% over the last year, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
Like most companies, Loar Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.
While Loar Holdings 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 here to simplify it.
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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.