Here's What To Make Of Garmin's (NYSE:GRMN) Decelerating Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Garmin's (NYSE:GRMN) ROCE trend, we were pretty happy with what we saw.

Our free stock report includes 1 warning sign investors should be aware of before investing in Garmin. Read for free now.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Garmin:

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

0.19 = US$1.6b ÷ (US$9.8b - US$1.3b) (Based on the trailing twelve months to March 2025).

Thus, Garmin has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 13% generated by the Consumer Durables industry.

Check out our latest analysis for Garmin

Above you can see how the current ROCE for Garmin compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Garmin .

What Can We Tell From Garmin's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 19% for the last five years, and the capital employed within the business has risen 60% in that time. 19% is a pretty standard return, and it provides some comfort knowing that Garmin 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

In the end, Garmin has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 149% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

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

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.