If you want to identify your next multibagger, there are some important trends to look out for. First, you want to identify what is growing. return In addition to capital employed (ROCE) continues to increase base of capital employed. Simply put, this type of business is a compound interest machine, meaning you are continually reinvesting your earnings at an ever-higher rate of return. Taking this into consideration, I found that New Toyo Educational Technology Group (NYSE:EDU) and its ROCE trend, we weren't exactly thrilled.
Return on Capital Employed (ROCE): What is it?
In case you aren't familiar, ROCE is a metric that measures how much pre-tax profit (as a percentage) a company earns on the capital invested in its business. Analysts use the following formula to calculate that for New Oriental Education & Technology Group.
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.076 = USD 341 million ÷ (USD 7.1 billion – USD 2.7 billion) (Based on the previous 12 months to November 2023).
So, New Oriental Education & Technology Group's ROCE is 7.6%. That's in line with the industry average of 7.6%, but that's still a poor return on its own.
Check out our latest analysis for New Oriental Education & Technology Group.
In the chart above, we've measured New Oriental Education & Technology Group's previous ROCE against its previous performance, but the future is probably more important. If you would like to see what analysts are predicting for the future, check out the free analyst report for New Oriental Education & Technology Group.
So how is New Oriental Education & Technology Group's ROCE trending?
When it comes to New Oriental Education & Technology Group's historical ROCE movement, it's not great. Over the past five years, his return on capital has fallen to 7.6% from 11% five years ago. However, given that both revenue and the amount of assets used in the business are increasing, this suggests that the company is investing in growth and the additional capital is leading to a decrease in ROCE in the short term. There may be. If these investments are successful, they can bode very well for long-term stock performance.
Conclusion on New Oriental Education & Technology Group's ROCE
We consider it encouraging to see New Oriental Education & Technology Group's both revenue and capital employed increasing, even if its return on capital has declined in the short term. These trends are starting to be noticed by investors, as the stock has delivered a 21% return on holding the stock over the past five years. Therefore, we recommend looking into this stock further to see if it has the makings of a good investment.
New Oriental Education & Technology Group may be trading at an attractive price on other fronts as well. EDU Free Intrinsic Value Estimate Very valuable on our platform.
New Oriental Education & Technology Group may not have the highest earnings, but check this out. free A list of companies with solid balance sheets and high return on equity.
Valuation is complex, but we help make it simple.
Check out our comprehensive analysis, including below, to see if New Oriental Education & Technology Group is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.