Stock Analysis

Cognex (NASDAQ:CGNX) Has More To Do To Multiply In Value Going Forward

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NasdaqGS:CGNX
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Cognex (NASDAQ:CGNX) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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. Analysts use this formula to calculate it for Cognex:

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

0.17 = US$319m ÷ (US$2.0b - US$165m) (Based on the trailing twelve months to October 2021).

Therefore, Cognex has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 10.0% generated by the Electronic industry.

Check out our latest analysis for Cognex

roce
NasdaqGS:CGNX Return on Capital Employed November 30th 2021

Above you can see how the current ROCE for Cognex compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Cognex Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 98% in that time. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

In the end, Cognex has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 184% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

What are the risks and opportunities for Cognex?

Cognex Corporation provides machine vision products that capture and analyze visual information in order to automate manufacturing and distribution tasks worldwide.

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Rewards

  • Earnings are forecast to grow 13.85% per year

Risks

No risks detected for CGNX from our risks checks.

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