Stock Analysis

There's Been No Shortage Of Growth Recently For Quanex Building Products' (NYSE:NX) Returns On Capital

NYSE:NX
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Quanex Building Products (NYSE:NX) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Quanex Building Products, this is the formula:

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

0.19 = US$111m ÷ (US$744m - US$159m) (Based on the trailing twelve months to July 2022).

So, Quanex Building Products has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 14% generated by the Building industry.

Check out our latest analysis for Quanex Building Products

roce
NYSE:NX Return on Capital Employed September 27th 2022

Above you can see how the current ROCE for Quanex Building Products 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 Quanex Building Products here for free.

What Does the ROCE Trend For Quanex Building Products Tell Us?

Quanex Building Products has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 145% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Quanex Building Products' ROCE

In summary, we're delighted to see that Quanex Building Products has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Astute investors may have an opportunity here because the stock has declined 13% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

While Quanex Building Products 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.

Discover if Quanex Building Products might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.