What These Trends Mean At MIND C.T.I (NASDAQ:MNDO)

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. On that note, looking into MIND C.T.I (NASDAQ:MNDO), we weren't too upbeat about how things were going.

Understanding 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 MIND C.T.I is:

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

0.22 = US$5.3m ÷ (US$30m - US$5.7m) (Based on the trailing twelve months to September 2020).

Therefore, MIND C.T.I has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Software industry average of 9.6%.

See our latest analysis for MIND C.T.I

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of MIND C.T.I, check out these free graphs here.

The Trend Of ROCE

There is reason to be cautious about MIND C.T.I, given the returns are trending downwards. To be more specific, the ROCE was 33% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on MIND C.T.I becoming one if things continue as they have.

The Key Takeaway

In summary, it's unfortunate that MIND C.T.I is generating lower returns from the same amount of capital. However the stock has delivered a 100% return to shareholders over the last five years, so investors might be expecting the trends to turn around. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

On a separate note, we've found 2 warning signs for MIND C.T.I you'll probably want to know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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