SS&C Technologies Holdings' (NASDAQ:SSNC) Returns Have Hit A Wall

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at SS&C Technologies Holdings (NASDAQ:SSNC) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on SS&C Technologies Holdings is:

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

0.079 = US$1.1b ÷ (US$16b - US$1.6b) (Based on the trailing twelve months to March 2023).

So, SS&C Technologies Holdings has an ROCE of 7.9%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 12%.

View our latest analysis for SS&C Technologies Holdings

In the above chart we have measured SS&C Technologies Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering SS&C Technologies Holdings here for free.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for SS&C Technologies Holdings in recent years. The company has employed 177% more capital in the last five years, and the returns on that capital have remained stable at 7.9%. 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.

The Bottom Line

In conclusion, SS&C Technologies Holdings has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 20% 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.

One more thing to note, we've identified 1 warning sign with SS&C Technologies Holdings and understanding it should be part of your investment process.

While SS&C Technologies Holdings 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.