WD-40 (NASDAQ:WDFC) Might Become A Compounding Machine

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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 WD-40 (NASDAQ:WDFC) looks attractive right now, so lets see what the trend of returns can tell us.

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What Is Return On Capital Employed (ROCE)?

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 WD-40, this is the formula:

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

0.28 = US$100m ÷ (US$456m - US$94m) (Based on the trailing twelve months to May 2025).

So, WD-40 has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Household Products industry average of 18%.

See our latest analysis for WD-40

Above you can see how the current ROCE for WD-40 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 WD-40 .

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by WD-40's returns on capital. The company has employed 35% more capital in the last five years, and the returns on that capital have remained stable at 28%. Now considering ROCE is an attractive 28%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If WD-40 can keep this up, we'd be very optimistic about its future.

The Key Takeaway

WD-40 has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. In light of this, the stock has only gained 19% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

While WD-40 looks impressive, no company is worth an infinite price. The intrinsic value infographic for WDFC helps visualize whether it is currently trading for a fair price.

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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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.