The Return Trends At UFP Technologies (NASDAQ:UFPT) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, we've noticed some promising trends at UFP Technologies (NASDAQ:UFPT) so let's look a bit deeper.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for UFP Technologies, this is the formula:

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

0.17 = US$62m ÷ (US$408m - US$52m) (Based on the trailing twelve months to March 2024).

Therefore, UFP Technologies has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 10% generated by the Medical Equipment industry.

Check out our latest analysis for UFP Technologies

Above you can see how the current ROCE for UFP Technologies 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 UFP Technologies .

So How Is UFP Technologies' ROCE Trending?

UFP Technologies is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 105%. So we're very much inspired by what we're seeing at UFP Technologies thanks to its ability to profitably reinvest capital.

Our Take On UFP Technologies' ROCE

All in all, it's terrific to see that UFP Technologies is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if UFP Technologies can keep these trends up, it could have a bright future ahead.

While UFP Technologies looks impressive, no company is worth an infinite price. The intrinsic value infographic for UFPT helps visualize whether it is currently trading for a fair price.

While UFP Technologies may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.

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