Valmont Industries (NYSE:VMI) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Valmont Industries (NYSE:VMI) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Valmont Industries:

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

0.18 = US$499m ÷ (US$3.5b - US$705m) (Based on the trailing twelve months to June 2024).

Thus, Valmont Industries has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Construction industry.

View our latest analysis for Valmont Industries

Above you can see how the current ROCE for Valmont Industries 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 Valmont Industries for free.

What Does the ROCE Trend For Valmont Industries Tell Us?

The trends we've noticed at Valmont Industries are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 24% more capital is being employed now too. So we're very much inspired by what we're seeing at Valmont Industries thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Valmont Industries is reaping the rewards from prior investments and is growing its capital base. And a remarkable 121% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Valmont Industries does have some risks though, and we've spotted 4 warning signs for Valmont Industries that you might be interested in.

While Valmont Industries 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.