Yahoo Finance Returns On Capital Signal Tricky Times Ahead For New Work (ETR:NWO)
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at New Work (ETR:NWO), they do have a high ROCE, but we weren't exactly elated from how returns are trending.
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. The formula for this calculation on New Work is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = €60m ÷ (€349m - €139m) (Based on the trailing twelve months to December 2023).
Thus, New Work has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Interactive Media and Services industry average of 22%.
Check out our latest analysis for New Work
Above you can see how the current ROCE for New Work 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 New Work for free.
What Can We Tell From New Work's ROCE Trend?
When we looked at the ROCE trend at New Work, we didn't gain much confidence. Historically returns on capital were even higher at 38%, but they have dropped over the last five years. However it looks like New Work might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line
In summary, New Work is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Moreover, since the stock has crumbled 79% over the last five years, it appears investors are expecting the worst. Therefore based on the analysis done in this article, we don't think New Work has the makings of a multi-bagger.
If you'd like to know more about New Work, we've spotted 3 warning signs, and 1 of them is concerning.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.
