Cavco Industries (NASDAQ:CVCO) shareholders will want ROCE trajectory to continue

Did you know that there are financial metrics that can provide clues to a potential multi-bagger? Typically, we will want to notice a growth trend to return to on capital employed (ROCE) and at the same time, a based capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. So on that note, Cavco Industries (NASDAQ:CVCO) looks quite promising when it comes to its capital return trends.

Return on capital employed (ROCE): what is it?

If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. To calculate this metric for Cavco Industries, here is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.19 = $161 million ÷ ($1.1 billion – $273 million) (Based on the last twelve months to January 2022).

Thereby, Cavco Industries posted a ROCE of 19%. By itself, that’s a standard return, but it’s far better than the 14% generated by the consumer durables industry.

See our latest analysis for Cavco Industries

NasdaqGS: CVCO Return on Capital Employed March 5, 2022

In the chart above, we measured Cavco Industries 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 Cavco Industries.

What does the ROCE trend tell us for Cavco Industries?

Cavco Industries shows positive trends. Figures show that over the past five years, returns generated on capital employed have increased significantly to 19%. The company is actually making more money per dollar of capital employed, and it’s worth noting that the amount of capital has also increased by 84%. This may indicate that there are many opportunities to invest capital internally and at ever-increasing rates, a common combination among multi-baggers.

Our perspective on Cavco Industries ROCE

A business that increases its returns on capital and can constantly reinvest in itself is a highly sought after trait, and that is what Cavco Industries possesses. Given that the stock has returned a staggering 133% to shareholders over the past five years, it seems investors recognize these changes. In light of that, we think it’s worth taking a closer look at this title, because if Cavco Industries can maintain these trends, it could have a bright future ahead of it.

Before drawing any conclusions, we need to know what value we get for the current stock price. This is where you can view our FREE Intrinsic Value Estimate which compares the stock price and the estimated value.

While Cavco Industries 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.

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.

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