Why We Like The Returns At Green Brick Partners (NYSE:GRBK)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Green Brick Partners' (NYSE:GRBK) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

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 Green Brick Partners is:

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

0.24 = US$364m ÷ (US$1.7b - US$199m) (Based on the trailing twelve months to March 2023).

Therefore, Green Brick Partners has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 18%.

View our latest analysis for Green Brick Partners

In the above chart we have measured Green Brick Partners' 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 report for Green Brick Partners.

How Are Returns Trending?

We like the trends that we're seeing from Green Brick Partners. The data shows that returns on capital have increased substantially over the last five years to 24%. The amount of capital employed has increased too, by 163%. So we're very much inspired by what we're seeing at Green Brick Partners thanks to its ability to profitably reinvest capital.

Our Take On Green Brick Partners' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Green Brick Partners has. Since the stock has returned a staggering 354% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Green Brick Partners, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.