Stride (NYSE:LRN) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So when we looked at Stride (NYSE:LRN) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Stride:

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

0.096 = US$132m ÷ (US$1.6b - US$249m) (Based on the trailing twelve months to December 2022).

So, Stride has an ROCE of 9.6%. On its own that's a low return, but compared to the average of 6.2% generated by the Consumer Services industry, it's much better.

View our latest analysis for Stride

In the above chart we have measured Stride's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Stride's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.6%. The amount of capital employed has increased too, by 117%. So we're very much inspired by what we're seeing at Stride thanks to its ability to profitably reinvest capital.

What We Can Learn From Stride's ROCE

All in all, it's terrific to see that Stride is reaping the rewards from prior investments and is growing its capital base. And a remarkable 165% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

While Stride looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether LRN is currently trading for a fair price.

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.