Returns Are Gaining Momentum At Textainer Group Holdings (NYSE:TGH)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Textainer Group Holdings (NYSE:TGH) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Textainer Group Holdings is:

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

0.06 = US$398m ÷ (US$7.3b - US$674m) (Based on the trailing twelve months to September 2021).

So, Textainer Group Holdings has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 12%.

View our latest analysis for Textainer Group Holdings

Above you can see how the current ROCE for Textainer Group 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 Textainer Group Holdings here for free.

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.0%. Basically the business is earning more per dollar of capital invested and in addition to that, 61% more capital is being employed now too. So we're very much inspired by what we're seeing at Textainer Group Holdings thanks to its ability to profitably reinvest capital.

The Bottom Line On Textainer Group Holdings' ROCE

All in all, it's terrific to see that Textainer Group Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 252% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Textainer Group Holdings does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are significant...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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.

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