To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, TaskUs (NASDAQ:TASK) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for TaskUs, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$102m ÷ (US$871m - US$111m) (Based on the trailing twelve months to September 2023).
Thus, TaskUs has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.
See our latest analysis for TaskUs
In the above chart we have measured TaskUs' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for TaskUs.
The Trend Of ROCE
Investors would be pleased with what's happening at TaskUs. Over the last four years, returns on capital employed have risen substantially to 13%. The amount of capital employed has increased too, by 35%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
Our Take On TaskUs' ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what TaskUs has. Astute investors may have an opportunity here because the stock has declined 25% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.
While TaskUs looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TASK is currently trading for a fair price.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.