Yahoo Finance Returns Are Gaining Momentum At Graphic Packaging Holding (NYSE:GPK)
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Graphic Packaging Holding (NYSE:GPK) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Graphic Packaging Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$1.2b ÷ (US$11b - US$1.7b) (Based on the trailing twelve months to March 2023).
So, Graphic Packaging Holding has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 11% it's much better.
Check out our latest analysis for Graphic Packaging Holding
Above you can see how the current ROCE for Graphic Packaging Holding 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 Graphic Packaging Holding.
What Does the ROCE Trend For Graphic Packaging Holding Tell Us?
We like the trends that we're seeing from Graphic Packaging Holding. The data shows that returns on capital have increased substantially over the last five years to 13%. The amount of capital employed has increased too, by 45%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
Our Take On Graphic Packaging Holding's ROCE
To sum it up, Graphic Packaging Holding has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 101% 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.
Like most companies, Graphic Packaging Holding does come with some risks, and we've found 2 warning signs that you should be aware of.
While Graphic Packaging Holding 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.
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