We Like Qualys' (NASDAQ:QLYS) Returns And Here's How They're Trending

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Qualys (NASDAQ:QLYS) we really liked what we saw.

What is 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. The formula for this calculation on Qualys is:

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

0.25 = US$124m ÷ (US$815m - US$319m) (Based on the trailing twelve months to March 2022).

Thus, Qualys has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Software industry average of 9.9%.

View our latest analysis for Qualys

In the above chart we have measured Qualys' 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 Qualys here for free.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Qualys are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 25%. Basically the business is earning more per dollar of capital invested and in addition to that, 63% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Qualys' ROCE

All in all, it's terrific to see that Qualys is reaping the rewards from prior investments and is growing its capital base. And a remarkable 225% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Qualys looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether QLYS is currently trading for a fair price.

Qualys is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.