N-able (NYSE:NABL) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at N-able (NYSE:NABL) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 N-able, this is the formula:

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

0.057 = US$59m ÷ (US$1.1b - US$74m) (Based on the trailing twelve months to June 2023).

So, N-able has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Software industry average of 9.2%.

Check out our latest analysis for N-able

Above you can see how the current ROCE for N-able 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 report for N-able.

The Trend Of ROCE

N-able is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last four years, the ROCE has climbed 90% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To sum it up, N-able is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 30% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if N-able can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for N-able that we think you should be aware of.

While N-able may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.