NASDAQ:AKAM) we aren’t jumping out of our chairs at how returns are trending, but let’s have a deeper look.” data-reactid=”28″>If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Akamai Technologies (NASDAQ:AKAM) we aren’t jumping out of our chairs at how returns are trending, but let’s have a deeper look.
Return On Capital Employed (ROCE): What is it?
Just to clarify if you’re unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Akamai Technologies is:
View our latest analysis for Akamai Technologies ” data-reactid=”38″> View our latest analysis for Akamai Technologies
report for Akamai Technologies.” data-reactid=”51″>Above you can see how the current ROCE for Akamai Technologies compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like to see what analysts are forecasting going forward, you should check out our free report for Akamai Technologies.
What Can We Tell From Akamai Technologies’ ROCE Trend?
In terms of Akamai Technologies’ historical ROCE movements, the trend isn’t fantastic. Over the last five years, returns on capital have decreased to 9.8% from 13% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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.
The Bottom Line
Bringing it all together, while we’re somewhat encouraged by Akamai Technologies’ reinvestment in its own business, we’re aware that returns are shrinking. Since the stock has gained an impressive 55% over the last five years, investors must think there’s better things to come. However, unless these underlying trends turn more positive, we wouldn’t get our hopes up too high.
2 warning signs that you should be aware of.” data-reactid=”56″>If you’d like to know about the risks facing Akamai Technologies, we’ve discovered 2 warning signs that you should be aware of.
list of companies that are earning high returns on equity with solid balance sheets.” data-reactid=”57″>While Akamai Technologies isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected].
