Stock Analysis
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- NasdaqGS:ZI
ZoomInfo Technologies (NASDAQ:ZI) Is Reinvesting At Lower Rates Of Return
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Having said that, from a first glance at ZoomInfo Technologies (NASDAQ:ZI) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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. The formula for this calculation on ZoomInfo Technologies is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.025 = US$164m ÷ (US$7.1b - US$518m) (Based on the trailing twelve months to September 2022).
Therefore, ZoomInfo Technologies has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 6.1%.
Check out our latest analysis for ZoomInfo Technologies
In the above chart we have measured ZoomInfo Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for ZoomInfo Technologies.
How Are Returns Trending?
On the surface, the trend of ROCE at ZoomInfo Technologies doesn't inspire confidence. Over the last three years, returns on capital have decreased to 2.5% from 4.5% three years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
What We Can Learn From ZoomInfo Technologies' ROCE
While returns have fallen for ZoomInfo Technologies in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 44% in the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
While ZoomInfo Technologies doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.
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.
What are the risks and opportunities for ZoomInfo Technologies?
ZoomInfo Technologies Inc., through its subsidiaries, provides go-to-market intelligence and engagement platform for sales and marketing teams in the United States and internationally.
Rewards
Trading at 31.2% below our estimate of its fair value
Earnings are forecast to grow 27.16% per year
Risks
Profit margins (5.8%) are lower than last year (15.6%)
Further research on
ZoomInfo Technologies
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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.
About NasdaqGS:ZI
ZoomInfo Technologies
ZoomInfo Technologies Inc., through its subsidiaries, provides go-to-market intelligence and engagement platform for sales and marketing teams in the United States and internationally.
Good value with reasonable growth potential.
