Returns At CSG Systems International (NASDAQ:CSGS) Appear To Be Weighed Down

What trends should we look for it we want to identify stocks that can 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at CSG Systems International (NASDAQ:CSGS), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on CSG Systems International is:

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

0.16 = US$141m ÷ (US$1.4b - US$561m) (Based on the trailing twelve months to December 2023).

Therefore, CSG Systems International has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 13% generated by the Professional Services industry.

Check out our latest analysis for CSG Systems International

In the above chart we have measured CSG Systems International's 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 analyst report for CSG Systems International .

So How Is CSG Systems International's ROCE Trending?

Things have been pretty stable at CSG Systems International, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect CSG Systems International to be a multi-bagger going forward.

The Bottom Line

In a nutshell, CSG Systems International has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 34% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing to note, we've identified 1 warning sign with CSG Systems International and understanding it should be part of your investment process.

While CSG Systems International 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.