Returns Are Gaining Momentum At Westinghouse Air Brake Technologies (NYSE:WAB)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Westinghouse Air Brake Technologies' (NYSE:WAB) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Westinghouse Air Brake Technologies:

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

0.093 = US$1.5b ÷ (US$19b - US$3.2b) (Based on the trailing twelve months to March 2024).

So, Westinghouse Air Brake Technologies has an ROCE of 9.3%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 13%.

View 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 analyst report for Westinghouse Air Brake Technologies .

The Trend Of ROCE

Westinghouse Air Brake Technologies' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 140% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In Conclusion...

In summary, we're delighted to see that Westinghouse Air Brake Technologies has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 166% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Westinghouse Air Brake Technologies can keep these trends up, it could have a bright future ahead.

If you want to continue researching Westinghouse Air Brake Technologies, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.