FLEETCOR Technologies (NYSE:FLT) Might Have The Makings Of A Multi-Bagger

By
Simply Wall St
Published
April 11, 2022
NYSE:FLT
Source: Shutterstock

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at FLEETCOR Technologies (NYSE:FLT) and its trend of ROCE, we really liked what we saw.

What is 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 FLEETCOR Technologies is:

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

0.15 = US$1.2b ÷ (US$13b - US$5.3b) (Based on the trailing twelve months to December 2021).

Thus, FLEETCOR Technologies has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 13% generated by the IT industry.

Check out our latest analysis for FLEETCOR Technologies

roce
NYSE:FLT Return on Capital Employed April 11th 2022

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

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at FLEETCOR Technologies. The data shows that returns on capital have increased substantially over the last five years to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 28% 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.

The Bottom Line On FLEETCOR Technologies' ROCE

In summary, it's great to see that FLEETCOR Technologies 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 investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 76% return over the last five years. In light of that, we think it's worth looking further into this stock because if FLEETCOR Technologies can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing FLEETCOR Technologies, we've discovered 1 warning sign that you should be aware of.

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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