There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Knife River (NYSE:KNF) and its trend of ROCE, we really liked what we saw.
We check all companies for important risks. See what we found for Knife River in our free report.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. To calculate this metric for Knife River, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$329m ÷ (US$2.9b - US$370m) (Based on the trailing twelve months to December 2024).
So, Knife River has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Basic Materials industry average of 15%.
Check out our latest analysis for Knife River
Above you can see how the current ROCE for Knife River 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 analyst report for Knife River .
The Trend Of ROCE
Investors would be pleased with what's happening at Knife River. The data shows that returns on capital have increased substantially over the last three years to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 36% more capital is being employed now too. So we're very much inspired by what we're seeing at Knife River thanks to its ability to profitably reinvest capital.
The Key Takeaway
All in all, it's terrific to see that Knife River is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 19% return over the last year. Therefore, we think it would be worth your time to check if these trends are going to continue.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for KNF on our platform that is definitely worth checking out.
While Knife River isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.