Shutterstock's (NYSE:SSTK) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Shutterstock (NYSE:SSTK) 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. The formula for this calculation on Shutterstock is:

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

0.14 = US$97m ÷ (US$1.3b - US$663m) (Based on the trailing twelve months to September 2024).

Thus, Shutterstock has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Interactive Media and Services industry.

See our latest analysis for Shutterstock

In the above chart we have measured Shutterstock's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Shutterstock for free.

So How Is Shutterstock's ROCE Trending?

The trends we've noticed at Shutterstock are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 86%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a separate but related note, it's important to know that Shutterstock has a current liabilities to total assets ratio of 49%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Shutterstock's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Shutterstock has. Astute investors may have an opportunity here because the stock has declined 24% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Shutterstock, we've spotted 3 warning signs, and 1 of them is concerning.

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

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.