Cimpress (NASDAQ:CMPR) Is Experiencing Growth In Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at Cimpress (NASDAQ:CMPR) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 Cimpress is:

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

0.13 = US$157m ÷ (US$1.8b - US$639m) (Based on the trailing twelve months to September 2023).

So, Cimpress has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 9.1% it's much better.

Check out our latest analysis for Cimpress

In the above chart we have measured Cimpress' 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 report for Cimpress.

What The Trend Of ROCE Can Tell Us

Cimpress' 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 33% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Cimpress' ROCE

In summary, we're delighted to see that Cimpress has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 36% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 2 warning signs we've spotted with Cimpress (including 1 which is 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.

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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.