Sources say, if you’re looking for stocks that have the potential to multiply their value in the long term, there are two key trends to consider. Firstly, a growing return on capital employed (ROCE), and secondly, an increasing amount of capital employed. These trends indicate that a company has profitable initiatives it can reinvest in, making it a compounding machine.
One company that stands out in terms of its return on equity trends is International Game Technology (NYSE:IGT). But before we delve into the specifics of IGT’s performance, let’s understand what ROCE actually measures.
ROCE is a metric that calculates the amount of pre-tax profits a company can generate from the capital employed in its business. For International Game Technologythe formula looks like this:
Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)
Based on trailing twelve months data until June 2023, IGT has an ROCE of 11%. This is considered a relatively normal return on capital and is comparable to the hotel industry’s average ROCE of 9.6%.
Now let’s take a closer look at IGT’s ROCE trend over time. In the past five years alone, IGT has seen its return on capital grow by an impressive 64%. The company now earns $0.1 per dollar of capital employed. Additionally, IGT seems to be achieving more with less capital as it uses 26% less capital to run its operations compared to previous years. This could suggest that IGT has been selling some assets or implementing other strategies to improve profitability.
Investors have taken notice of these positive changes, as evidenced by IGT’s solid 87% return to shareholders over the last five years. However, it’s important to conduct further due diligence before making any investment decisions.
If you want more information about International Game Technologythe source provides a comprehensive analysis that includes warning signs and potential valuation concerns. You can access the analysis by visiting this link: Simply Wall St(https://simplywall.st/stocks/us/consumer-services/nyse-igt/international-game-technology/news/theres-been-no-shortage-of-growth-recently-for-international/amp).
The apprehension, International Game Technology’s improving return on capital and efficient use of capital are positive indicators for long-term growth. While it may not currently have the highest returns, it’s worth considering IGT alongside other companies that are earning over 25% returns on equity. Remember to conduct thorough research and consider your own financial situation before making any investment decisions.
Please note that this article is for informational purposes only and does not constitute financial advice. The analysis provided is based on historical data and analyst forecasts using unbiased methodology. Always seek professional guidance when making investment decisions.
Source: (According to the source)(https://simplywall.st/stocks/us/consumer-services/nyse-igt/international-game-technology/news/theres-been-no-shortage-of-growth-recently-for-international/amp).