Costamare (NYSE:CMRE) Shareholders Will Want The ROCE Trajectory To Continue

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. So on that note, Costamare (NYSE:CMRE) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for Costamare:

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

0.078 = US$362m ÷ (US$5.3b - US$673m) (Based on the trailing twelve months to September 2023).

So, Costamare has an ROCE of 7.8%. On its own, that's a low figure but it's around the 9.0% average generated by the Shipping industry.

Check out our latest analysis for Costamare

Above you can see how the current ROCE for Costamare 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 Costamare here for free.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.8%. Basically the business is earning more per dollar of capital invested and in addition to that, 102% more capital is being employed now too. So we're very much inspired by what we're seeing at Costamare thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Costamare is reaping the rewards from prior investments and is growing its capital base. And a remarkable 154% 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.

If you'd like to know more about Costamare, we've spotted 4 warning signs, and 2 of them are a bit unpleasant.

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

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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.