Many Would Be Envious Of Copart's (NASDAQ:CPRT) Excellent 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? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Copart (NASDAQ:CPRT), we liked what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Copart is:

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

0.27 = US$1.0b ÷ (US$4.3b - US$413m) (Based on the trailing twelve months to April 2021).

So, Copart has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 7.4%.

View our latest analysis for Copart

Above you can see how the current ROCE for Copart compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

In terms of Copart's history of ROCE, it's quite impressive. The company has consistently earned 27% for the last five years, and the capital employed within the business has risen 172% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Copart can keep this up, we'd be very optimistic about its future.

Our Take On Copart's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 467% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Copart does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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