Should You Be Impressed By Cognizant Technology Solutions' (NASDAQ:CTSH) Returns on Capital?
NASDAQ:CTSH) trend of ROCE, we liked what we saw.” data-reactid=”28″>What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Cognizant Technology Solutions’ (NASDAQ:CTSH) trend of ROCE, we liked what we saw.
Understanding Return On Capital Employed (ROCE)
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. To calculate this metric for Cognizant Technology Solutions, this is the formula:
See our latest analysis for Cognizant Technology Solutions ” data-reactid=”38″> See our latest analysis for Cognizant Technology Solutions
report on analyst forecasts for the company.” data-reactid=”51″>Above you can see how the current ROCE for Cognizant Technology Solutions 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 report on analyst forecasts for the company.
The Trend Of ROCE
While the current returns on capital are decent, they haven’t changed much. The company has consistently earned 19% for the last five years, and the capital employed within the business has risen 52% in that time. Since 19% is a moderate ROCE though, it’s good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Bottom Line
The main thing to remember is that Cognizant Technology Solutions has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 17% return to shareholders who held over that period. So because of the trends we’re seeing, we’d recommend looking further into this stock to see if it has the makings of a multi-bagger.
FREE intrinsic value estimation on our platform.” data-reactid=”56″>While Cognizant Technology Solutions doesn’t shine too bright in this respect, it’s still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.
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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.
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