Brady (NYSE:BRC) Has Some Way To Go To Become A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Brady's (NYSE:BRC) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Brady:

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

0.19 = US$243m ÷ (US$1.5b - US$265m) (Based on the trailing twelve months to July 2024).

Thus, Brady has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 10% it's much better.

View our latest analysis for Brady

Above you can see how the current ROCE for Brady compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Brady .

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has employed 37% more capital in the last five years, and the returns on that capital have remained stable at 19%. 19% is a pretty standard return, and it provides some comfort knowing that Brady has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

The main thing to remember is that Brady has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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

While Brady 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.