What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Corsair Gaming (NASDAQ:CRSR), we don't think it's current trends fit the mold of a multi-bagger.
Understanding 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 Corsair Gaming, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.01 = US$9.7m ÷ (US$1.4b - US$418m) (Based on the trailing twelve months to December 2023).
So, Corsair Gaming has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 8.6%.
Above you can see how the current ROCE for Corsair Gaming compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Corsair Gaming .
The Trend Of ROCE
On the surface, the trend of ROCE at Corsair Gaming doesn't inspire confidence. Over the last five years, returns on capital have decreased to 1.0% from 3.9% five years ago. However it looks like Corsair Gaming might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
What We Can Learn From Corsair Gaming's ROCE
To conclude, we've found that Corsair Gaming is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 66% in the last three years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
One more thing, we've spotted 1 warning sign facing Corsair Gaming that you might find interesting.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.