Return Trends At Westinghouse Air Brake Technologies (NYSE:WAB) Aren't Appealing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. However, after investigating Westinghouse Air Brake Technologies (NYSE:WAB), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Westinghouse Air Brake Technologies, this is the formula:

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

0.086 = US$1.3b ÷ (US$19b - US$3.9b) (Based on the trailing twelve months to September 2023).

So, Westinghouse Air Brake Technologies has an ROCE of 8.6%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 12%.

Check out our latest analysis for Westinghouse Air Brake Technologies

In the above chart we have measured Westinghouse Air Brake Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Westinghouse Air Brake Technologies' ROCE Trend?

In terms of Westinghouse Air Brake Technologies' historical ROCE trend, it doesn't exactly demand attention. The company has employed 112% more capital in the last five years, and the returns on that capital have remained stable at 8.6%. 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.

What We Can Learn From Westinghouse Air Brake Technologies' ROCE

As we've seen above, Westinghouse Air Brake Technologies' returns on capital haven't increased but it is reinvesting in the business. And with the stock having returned a mere 29% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Westinghouse Air Brake Technologies, we've discovered 1 warning sign that you should be aware of.

While Westinghouse Air Brake Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.