Juniper Networks (NYSE:JNPR) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Juniper Networks (NYSE:JNPR) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. The formula for this calculation on Juniper Networks is:

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

0.089 = US$637m ÷ (US$9.4b - US$2.3b) (Based on the trailing twelve months to June 2023).

Thus, Juniper Networks has an ROCE of 8.9%. Even though it's in line with the industry average of 8.9%, it's still a low return by itself.

Check out our latest analysis for Juniper Networks

Above you can see how the current ROCE for Juniper Networks compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Juniper Networks here for free.

How Are Returns Trending?

Things have been pretty stable at Juniper Networks, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Juniper Networks to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Juniper Networks has been paying out a decent 40% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

What We Can Learn From Juniper Networks' ROCE

In a nutshell, Juniper Networks has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 9.9% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to continue researching Juniper Networks, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Juniper Networks isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have 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.