Return Trends At Check Point Software Technologies (NASDAQ:CHKP) Aren't Appealing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Looking at Check Point Software Technologies (NASDAQ:CHKP), it does have a high ROCE right now, but lets see how returns are trending.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Check Point Software Technologies is:

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

0.23 = US$874m ÷ (US$5.5b - US$1.7b) (Based on the trailing twelve months to September 2024).

Thus, Check Point Software Technologies has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Software industry average of 8.3%.

View our latest analysis for Check Point Software Technologies

Above you can see how the current ROCE for Check Point Software Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Check Point Software Technologies for free.

So How Is Check Point Software Technologies' ROCE Trending?

There hasn't been much to report for Check Point Software Technologies' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So it may not be a multi-bagger in the making, but given the decent 23% return on capital, it'd be difficult to find fault with the business's current operations.

The Bottom Line On Check Point Software Technologies' ROCE

While Check Point Software Technologies has impressive profitability from its capital, it isn't increasing that amount of capital. Since the stock has gained an impressive 67% over the last five years, 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.

Check Point Software Technologies could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for CHKP on our platform quite valuable.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.