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Investors Could Be Concerned With TransAct Technologies' (NASDAQ:TACT) Returns On Capital
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at TransAct Technologies (NASDAQ:TACT), it didn't seem to tick all of these boxes.
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. Analysts use this formula to calculate it for TransAct Technologies:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.015 = US$592k ÷ (US$52m - US$12m) (Based on the trailing twelve months to March 2024).
Thus, TransAct Technologies has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 8.3%.
Check out our latest analysis for TransAct Technologies
In the above chart we have measured TransAct Technologies' 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 TransAct Technologies for free.
The Trend Of ROCE
On the surface, the trend of ROCE at TransAct Technologies doesn't inspire confidence. Over the last five years, returns on capital have decreased to 1.5% from 22% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.
Our Take On TransAct Technologies' ROCE
We're a bit apprehensive about TransAct Technologies because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Investors haven't taken kindly to these developments, since the stock has declined 66% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
One more thing: We've identified 5 warning signs with TransAct Technologies (at least 1 which is concerning) , and understanding them would certainly be useful.
While TransAct Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Valuation is complex, but we're here to simplify it.
Discover if TransAct Technologies might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
About NasdaqGM:TACT
TransAct Technologies
Designs, develops, and markets transaction-based and specialty printers and terminals in the United States and internationally.
Excellent balance sheet and fair value.
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