TaskUs (NASDAQ:TASK) Shareholders Will Want The ROCE Trajectory To Continue

December 09, 2022

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in TaskUs' (NASDAQ:TASK) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for TaskUs, this is the formula:

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

0.13 = US$99m ÷ (US$887m - US$109m) (Based on the trailing twelve months to September 2022).

So, TaskUs has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 12% generated by the IT industry.

Check out the opportunities and risks within the US IT industry.

Above you can see how the current ROCE for TaskUs 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 TaskUs here for free.

What Can We Tell From TaskUs' ROCE Trend?

Investors would be pleased with what's happening at TaskUs. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 39%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On TaskUs' ROCE

In summary, it's great to see that TaskUs 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. And since the stock has fallen 58% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching TaskUs, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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Discover if TaskUs might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.