Stock Analysis

Juniper Networks (NYSE:JNPR) Has Some Difficulty Using Its Capital Effectively

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If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after we looked into Juniper Networks (NYSE:JNPR), the trends above didn't look too great.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Juniper Networks, this is the formula:

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

0.074 = US$539m ÷ (US$9.3b - US$2.1b) (Based on the trailing twelve months to December 2022).

Thus, Juniper Networks has an ROCE of 7.4%. Ultimately, that's a low return and it under-performs the Communications industry average of 11%.

View our latest analysis for Juniper Networks

NYSE:JNPR Return on Capital Employed March 19th 2023

In the above chart we have measured Juniper Networks' 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.

What Can We Tell From Juniper Networks' ROCE Trend?

In terms of Juniper Networks' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 11% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Juniper Networks becoming one if things continue as they have.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Yet despite these concerning fundamentals, the stock has performed strongly with a 51% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you want to continue researching Juniper Networks, you might be interested to know about the 2 warning signs that our analysis has discovered.

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.

What are the risks and opportunities for Juniper Networks?

Juniper Networks, Inc. designs, develops, and sells network products and services worldwide.

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  • Trading at 54.8% below our estimate of its fair value

  • Earnings are forecast to grow 8.03% per year

  • Earnings grew by 86.4% over the past year


  • Significant insider selling over the past 3 months

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