Returns On Capital Are A Standout For CPI Card Group (NASDAQ:PMTS)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 the ROCE trend of CPI Card Group (NASDAQ:PMTS) 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 CPI Card Group, this is the formula:

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

0.21 = US$53m ÷ (US$321m - US$69m) (Based on the trailing twelve months to June 2024).

So, CPI Card Group has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Tech industry average of 8.9%.

Check out our latest analysis for CPI Card Group

Above you can see how the current ROCE for CPI Card Group 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 CPI Card Group .

The Trend Of ROCE

Investors would be pleased with what's happening at CPI Card Group. The data shows that returns on capital have increased substantially over the last five years to 21%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 45%. So we're very much inspired by what we're seeing at CPI Card Group thanks to its ability to profitably reinvest capital.

What We Can Learn From CPI Card Group's ROCE

All in all, it's terrific to see that CPI Card Group is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 806% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

CPI Card Group does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.