ZoomInfo Technologies (NASDAQ:ZI) Is Reinvesting At Lower Rates Of Return

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating ZoomInfo Technologies (NASDAQ:ZI), we don't think it's current trends fit the mold of a multi-bagger.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for ZoomInfo Technologies:

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

0.034 = US$199m ÷ (US$6.4b - US$624m) (Based on the trailing twelve months to September 2024).

Therefore, ZoomInfo Technologies has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 6.8%.

See our latest analysis for ZoomInfo Technologies

Above you can see how the current ROCE for ZoomInfo Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for ZoomInfo Technologies .

How Are Returns Trending?

On the surface, the trend of ROCE at ZoomInfo Technologies doesn't inspire confidence. Around five years ago the returns on capital were 4.5%, but since then they've fallen to 3.4%. However it looks like ZoomInfo Technologies might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

In summary, ZoomInfo Technologies is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 83% over the last three years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Like most companies, ZoomInfo Technologies does come with some risks, and we've found 4 warning signs that you should be aware of.

While ZoomInfo 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.

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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.