Yahoo Finance We Like United-Guardian's (NASDAQ:UG) Returns And Here's How They're Trending
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. And in light of that, the trends we're seeing at United-Guardian's (NASDAQ:UG) look very promising so lets take a look.
What Is 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. Analysts use this formula to calculate it for United-Guardian:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.47 = US$4.7m ÷ (US$12m - US$1.7m) (Based on the trailing twelve months to September 2022).
So, United-Guardian has an ROCE of 47%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 14%.
See our latest analysis for United-Guardian
Historical performance is a great place to start when researching a stock so above you can see the gauge for United-Guardian's ROCE against it's prior returns. If you'd like to look at how United-Guardian has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
We're pretty happy with how the ROCE has been trending at United-Guardian. The figures show that over the last five years, returns on capital have grown by 48%. The company is now earning US$0.5 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 33% less capital than it was five years ago. United-Guardian may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
The Key Takeaway
In summary, it's great to see that United-Guardian has been able to turn things around and earn higher returns on lower amounts of capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.
If you want to know some of the risks facing United-Guardian we've found 5 warning signs (2 can't be ignored!) that you should be aware of before investing here.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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