Returns On Capital At TE Connectivity (NYSE:TEL) Have Hit The Brakes

There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at TE Connectivity (NYSE:TEL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for TE Connectivity, this is the formula:

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

0.15 = US$2.7b ÷ (US$22b - US$4.5b) (Based on the trailing twelve months to September 2023).

So, TE Connectivity has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 12% it's much better.

View our latest analysis for TE Connectivity

Above you can see how the current ROCE for TE Connectivity 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 report for TE Connectivity.

So How Is TE Connectivity's ROCE Trending?

There hasn't been much to report for TE Connectivity's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if TE Connectivity doesn't end up being a multi-bagger in a few years time.

The Bottom Line On TE Connectivity's ROCE

In a nutshell, TE Connectivity has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 79% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you're still interested in TE Connectivity it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While TE Connectivity may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.