Why We Like The Returns At Seagate Technology Holdings (NASDAQ:STX)

Simply Wall St
·3 min read

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Seagate Technology Holdings' (NASDAQ:STX) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Seagate Technology Holdings:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.26 = US$1.5b ÷ (US$8.7b - US$2.9b) (Based on the trailing twelve months to July 2021).

So, Seagate Technology Holdings has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Tech industry average of 9.7%.

View our latest analysis for Seagate Technology Holdings

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In the above chart we have measured Seagate Technology Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Seagate Technology Holdings Tell Us?

Seagate Technology Holdings has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 128% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Seagate Technology Holdings' ROCE

To bring it all together, Seagate Technology Holdings has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 259% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Seagate Technology Holdings can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 2 warning signs for Seagate Technology Holdings you'll probably want to know about.

Seagate Technology Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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