Should We Be Excited About The Trends Of Returns At CompX International (NYSEMKT:CIX)?

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at CompX International (NYSEMKT:CIX), it didn't seem to tick all of these boxes.

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. To calculate this metric for CompX International, this is the formula:

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

0.076 = US$13m ÷ (US$182m - US$12m) (Based on the trailing twelve months to September 2020).

Thus, CompX International has an ROCE of 7.6%. On its own, that's a low figure but it's around the 9.4% average generated by the Commercial Services industry.

See our latest analysis for CompX International

Historical performance is a great place to start when researching a stock so above you can see the gauge for CompX International's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of CompX International, check out these free graphs here.

So How Is CompX International's ROCE Trending?

In terms of CompX International's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.6% from 12% five years ago. However it looks like CompX International might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On CompX International's ROCE

To conclude, we've found that CompX International is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 52% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

CompX International does have some risks though, and we've spotted 1 warning sign for CompX International that you might be interested in.

While CompX International 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. 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.
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