If you’re uncertain about how to identify the next potential multi-bagger, there are several crucial trends to watch. A common strategy involves seeking out a company with increasing returns on capital employed (ROCE) alongside a growing capital employed. In simpler terms, these businesses act as compounding machines, consistently reinvesting their profits at higher rates of return. With that in mind, we’ve observed some significant improvements in EverCommerce’s (NASDAQ:EVCM) returns on capital, so let’s take a closer look.
For those unfamiliar, ROCE quantifies a company’s annual pre-tax profits (its returns) in relation to the capital employed in the business. Analysts compute this metric for EverCommerce using the following formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.021 = US$29m ÷ (US$1.5b – US$109m) (Based on the trailing twelve months ending September 2024).
Thus, EverCommerce has achieved an ROCE of 2.1%. Although this is low in absolute terms, it also underperforms compared to the Software industry average of 8.6%.
Explore our latest analysis for EverCommerce
In the chart above, we’ve evaluated EverCommerce’s previous ROCE against its past performance, but the future holds more significance. If you’d like, you can view the forecasts from analysts following EverCommerce for free.
We are thrilled to report that EverCommerce is enjoying the benefits of its investments and has achieved profitability. Currently, the company records a 2.1% return on its capital, a marked improvement from four years ago when it faced losses. While returns have risen, the capital employed by EverCommerce has remained relatively stable. However, it would be beneficial to know if the company has future investment plans because, ultimately, a business’s efficiency can only improve to a certain extent.
In summary, EverCommerce is generating higher returns with the same amount of capital, which is commendable. Given that the total return from the stock has been almost stagnant over the last three years, opportunities might exist if the valuation is attractive. Thus, further investigation into this company and whether these trends will persist seems warranted.
If you wish to continue your research on EverCommerce, you might be interested to learn about the 1 warning sign that our analysis has uncovered.
