To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at Accenture (NYSE:ACN), we liked what we saw.
Understanding 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 Accenture is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = US$10b ÷ (US$51b - US$16b) (Based on the trailing twelve months to February 2024).
Therefore, Accenture has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.
View our latest analysis for Accenture
Above you can see how the current ROCE for Accenture compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Accenture .
How Are Returns Trending?
In terms of Accenture's history of ROCE, it's quite impressive. The company has consistently earned 29% for the last five years, and the capital employed within the business has risen 105% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Accenture can keep this up, we'd be very optimistic about its future.
The Key Takeaway
In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has followed suit returning a meaningful 68% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
If you want to continue researching Accenture, you might be interested to know about the 1 warning sign that our analysis has discovered.
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. 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.
About NYSE:ACN
Accenture
A professional services company, provides strategy and consulting, industry X, song, and technology and operation services worldwide.
Excellent balance sheet established dividend payer.
