Investors Met With Slowing Returns on Capital At CCC Intelligent Solutions Holdings (NASDAQ:CCCS)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think CCC Intelligent Solutions Holdings (NASDAQ:CCCS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. To calculate this metric for CCC Intelligent Solutions Holdings, this is the formula:

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

0.016 = US$50m ÷ (US$3.3b - US$135m) (Based on the trailing twelve months to June 2023).

Therefore, CCC Intelligent Solutions Holdings has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Software industry average of 8.9%.

See our latest analysis for CCC Intelligent Solutions Holdings

In the above chart we have measured CCC Intelligent Solutions Holdings' 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.

What Can We Tell From CCC Intelligent Solutions Holdings' ROCE Trend?

Things have been pretty stable at CCC Intelligent Solutions Holdings, with its capital employed and returns on that capital staying somewhat the same for the last three years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect CCC Intelligent Solutions Holdings to be a multi-bagger going forward.

In Conclusion...

We can conclude that in regards to CCC Intelligent Solutions Holdings' returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 39% over the last year, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

CCC Intelligent Solutions Holdings does have some risks though, and we've spotted 1 warning sign for CCC Intelligent Solutions Holdings that you might be interested in.

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

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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.