There has been no shortage of growth recently for TechTarget’s (NASDAQ:TTGT) capital returns
Did you know that there are financial metrics that can provide clues to a potential multi-bagger? In a perfect world, we would like to see a company invest more capital in their business and ideally the returns from that capital also increase. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. So on that note, TechTarget (NASDAQ:TTGT) looks quite promising when it comes to its capital return trends.
Return on capital employed (ROCE): what is it?
For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. The formula for this calculation on TechTarget is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.062 = $45 million ÷ ($799 million – $65 million) (Based on the last twelve months to March 2022).
So, TechTarget has a ROCE of 6.2%. In absolute terms, this is a low return, but it is around the media industry average of 7.1%.
Check out our latest analysis for TechTarget
In the chart above, we measured TechTarget’s past ROCE against its past performance, but the future is arguably more important. If you want to see what analysts are predicting for the future, you should check out our free report for TechTarget.
What is the return trend?
Even though ROCE is still weak in absolute terms, it is good to see that it is heading in the right direction. The figures show that over the past five years, returns generated on capital employed have increased significantly to 6.2%. Basically, the business earns more per dollar of invested capital and on top of that, 391% more capital is also utilized now. This may indicate that there are many opportunities to invest capital internally and at ever-increasing rates, a common combination among multi-baggers.
Overall, it’s great to see TechTarget reaping the rewards of past investments and growing its capital base. And a remarkable total return of 673% over the past five years tells us that investors expect more good things to come. That being said, we still think the promising fundamentals mean the company merits further due diligence.
One more thing to note, we have identified 2 warning signs with TechTarget and understanding them should be part of your investment process.
While TechTarget isn’t currently generating the highest returns, we’ve compiled a list of companies that are currently generating over 25% return on equity. look at this free list here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.