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 on the other hand, an expansion of the Rising 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 examined 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) that 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 a 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 ROCE trend can tell us

Looking at the historical ROCE performance of Chart Industries, it’s not particularly interesting to look at. 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 investing its funds in high-yielding investments.

The key to remember

As we saw above, Chart Industries’ return on capital has not increased, but the company is reinvesting in the business. The market should expect these trends to improve, however, as the stock has gained 96% over the past five years. However, unless these underlying trends become more positive, we should not have too many illusions.

Chart Industries does however involve certain risks, we have noted 3 warning signs in our investment analysis, and 1 of them is potentially serious…

For those who like to invest in solid companies, 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. It 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 bring you targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative information. Simply Wall St has no position in any stocks mentioned.

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