Shareholders Would Enjoy A Repeat Of Garmin's (NYSE:GRMN) Recent Growth In Returns

By
Simply Wall St
Published
January 14, 2022
NYSE:GRMN
Source: Shutterstock

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Garmin (NYSE:GRMN) looks great, so lets see what the trend can tell us.

Understanding 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. The formula for this calculation on Garmin is:

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

0.21 = US$1.3b ÷ (US$7.6b - US$1.4b) (Based on the trailing twelve months to September 2021).

So, Garmin has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 15%.

See our latest analysis for Garmin

roce
NYSE:GRMN Return on Capital Employed January 14th 2022

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'd like to see what analysts are forecasting going forward, you should check out our free report for Garmin.

So How Is Garmin's ROCE Trending?

Garmin is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 21%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 69%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Garmin's ROCE

All in all, it's terrific to see that Garmin is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 220% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 1 warning sign for Garmin that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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