Be Wary Of Rockwell Automation (NYSE:ROK) And Its Returns On Capital

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Rockwell Automation (NYSE:ROK) and its ROCE trend, we weren't exactly thrilled.

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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 Rockwell Automation, this is the formula:

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

0.17 = US$1.3b ÷ (US$11b - US$3.6b) (Based on the trailing twelve months to March 2025).

Thus, Rockwell Automation has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 12% it's much better.

See our latest analysis for Rockwell Automation

In the above chart we have measured Rockwell Automation's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Rockwell Automation .

What Does the ROCE Trend For Rockwell Automation Tell Us?

When we looked at the ROCE trend at Rockwell Automation, we didn't gain much confidence. Around five years ago the returns on capital were 27%, but since then they've fallen to 17%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

In Conclusion...

We're a bit apprehensive about Rockwell Automation because despite more capital being deployed in the business, returns on that capital and sales have both fallen. However the stock has delivered a 75% return to shareholders over the last five years, so investors might be expecting the trends to turn around. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Rockwell Automation does have some risks though, and we've spotted 1 warning sign for Rockwell Automation that you might be interested in.

While Rockwell Automation 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.

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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.