Stock Analysis

Investors Will Want News' (NASDAQ:NWSA) Growth In ROCE To Persist

Published
NasdaqGS:NWSA
Source: Shutterstock

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in News' (NASDAQ:NWSA) returns on capital, so let's have a look.

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 News:

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

0.069 = US$923m ÷ (US$16b - US$3.0b) (Based on the trailing twelve months to September 2022).

Thus, News has an ROCE of 6.9%. In absolute terms, that's a low return but it's around the Media industry average of 8.5%.

Check out the opportunities and risks within the US Media industry.

roce
NasdaqGS:NWSA Return on Capital Employed December 5th 2022

Above you can see how the current ROCE for News compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering News here for free.

What Can We Tell From News' ROCE Trend?

News is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 56% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

To sum it up, News is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 23% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

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

While News isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

What are the risks and opportunities for News?

News Corporation, a media and information services company, creates and distributes authoritative and engaging content, and other products and services for consumers and businesses worldwide.

View Full Analysis

Rewards

  • Trading at 33.1% below our estimate of its fair value

  • Earnings are forecast to grow 15.2% per year

Risks

  • Large one-off items impacting financial results

View all Risks and Rewards

Share Price

Market Cap

1Y Return

View Company Report