Returns Are Gaining Momentum At N-able (NYSE:NABL)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Speaking of which, we noticed some great changes in N-able's (NYSE:NABL) returns on capital, so let's have a look.

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)

0.053 = US$54m ÷ (US$1.1b - US$64m) (Based on the trailing twelve months to March 2023).

Thus, N-able has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Software industry average of 10%.

Check out our latest analysis for N-able

In the above chart we have measured N-able's 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 N-able here for free.

What Does the ROCE Trend For N-able Tell Us?

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 101% 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.

Our Take On N-able's ROCE

As discussed above, N-able appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 35% 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.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

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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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.