Yahoo Finance Return Trends At Littelfuse (NASDAQ:LFUS) Aren't Appealing
If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Littelfuse's (NASDAQ:LFUS) ROCE trend, we were pretty happy with what we saw.
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 Littelfuse is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = US$378m ÷ (US$4.0b - US$375m) (Based on the trailing twelve months to December 2023).
Therefore, Littelfuse has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 11% generated by the Electronic industry.
See our latest analysis for Littelfuse
Above you can see how the current ROCE for Littelfuse 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 analyst report for Littelfuse .
How Are Returns Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 56% in that time. Since 10% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Bottom Line On Littelfuse's ROCE
In the end, Littelfuse has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 19% return to shareholders who held over that period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.
Littelfuse does have some risks though, and we've spotted 1 warning sign for Littelfuse that you might be interested in.
While Littelfuse 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.
