Why The 23% Return On Capital At Shutterstock (NYSE:SSTK) Should Have Your Attention

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Shutterstock (NYSE:SSTK) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Shutterstock is:

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

0.23 = US$123m ÷ (US$843m - US$313m) (Based on the trailing twelve months to March 2023).

Thus, Shutterstock has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 8.0% earned by companies in a similar industry.

View 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Shutterstock

The Trend Of ROCE

We like the trends that we're seeing from Shutterstock. Over the last five years, returns on capital employed have risen substantially to 23%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 41%. So we're very much inspired by what we're seeing at Shutterstock thanks to its ability to profitably reinvest capital.

The Bottom Line On Shutterstock's ROCE

In summary, it's great to see that Shutterstock can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 25% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to continue researching Shutterstock, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.