Slowing Yields at Chart Industries (NYSE:GTLS) Leave Little Room for Enthusiasm

There are a few key trends to watch if we want to identify the next multi-bagger. Among other things, we’ll want to see two things: first, growth back on capital employed (ROCE) and secondly, an expansion of the company Rising of capital employed. Ultimately, this demonstrates that this is a company that reinvests its profits at increasing rates of return. In light of this, when we looked at Graphics industries (NYSE:GTLS) and its ROCE trend, we weren’t exactly thrilled.

What is return on capital employed (ROCE)?

If you’ve never worked with ROCE before, it measures the “return” (pre-tax profit) a company generates from the capital employed in its business. The formula for this calculation on Chart Industries is:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.073 = $534 million ÷ ($9.2 billion – $1.9 billion) (Based on the last twelve months to March 2024).

So, Chart Industries has an ROCE of 7.3%. Ultimately, this is a low return and underperforms the machinery sector average of 13%.

Check out our latest analysis for Chart Industries

In the chart above, we’ve compared Chart Industries’s historical ROCE to its past performance, but the future is arguably more important. If you’re interested, you can check out analyst forecasts in our free analyst report for Chart Industries.

What the evolution of ROCE can teach us

As for Chart Industries’ historical ROCE trend, it doesn’t really demand attention. The company has employed 451% more capital over the last five years, and the return on that capital has remained stable at 7.3%. This low ROCE doesn’t inspire confidence at the moment, and with the increase in capital employed, it’s clear that the company isn’t deploying funds into high-yield investments.

The key to remember

As we saw above, Chart Industries’ returns on capital have not increased but are reinvesting in the business. Although the market should expect these trends to improve as the stock has gained 96% over the past five years. However, unless these underlying trends become more positive, we can’t get our hopes up too much.

Chart Industries does, however, carry some risks, we have noted. 3 warning signs in our investment analysis, and one of them is potentially serious…

For those who like to invest in solid businesses, Look at this free list of companies with strong balance sheets and high returns on equity.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to constitute financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. Our goal is to provide you with focused, long-term analysis based on fundamental data. Please note that our analysis may not factor in the latest price-sensitive company announcements or qualitative information. Simply Wall St has no position in any of the stocks mentioned.

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