Stock Analysis

Zebra Technologies (NASDAQ:ZBRA) Is Experiencing Growth In Returns On Capital

NasdaqGS:ZBRA
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Zebra Technologies (NASDAQ:ZBRA) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Zebra Technologies:

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

0.18 = US$936m ÷ (US$7.5b - US$2.3b) (Based on the trailing twelve months to December 2022).

So, Zebra Technologies has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 13% generated by the Electronic industry.

View our latest analysis for Zebra Technologies

roce
NasdaqGS:ZBRA Return on Capital Employed April 25th 2023

In the above chart we have measured Zebra Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Zebra Technologies

Strength
  • Debt is well covered by earnings and cashflows.
Weakness
  • Earnings declined over the past year.
Opportunity
  • Annual earnings are forecast to grow faster than the American market.
  • Trading below our estimate of fair value by more than 20%.
Threat
  • Annual revenue is forecast to grow slower than the American market.

What Does the ROCE Trend For Zebra Technologies Tell Us?

The trends we've noticed at Zebra Technologies are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 59% more capital is being employed now too. So we're very much inspired by what we're seeing at Zebra Technologies thanks to its ability to profitably reinvest capital.

The Bottom Line On Zebra Technologies' ROCE

In summary, it's great to see that Zebra Technologies can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 114% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Zebra Technologies does have some risks though, and we've spotted 4 warning signs for Zebra Technologies that you might be interested in.

While Zebra 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 helping make it simple.

Find out whether Zebra Technologies is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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.