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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, NetScout Systems (NASDAQ:NTCT) looks quite promising in regards to its trends of return on capital.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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. The formula for this calculation on NetScout Systems is:

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

0.038 = US$68m ÷ (US$2.2b - US$382m) (Based on the trailing twelve months to December 2024).

Therefore, NetScout Systems has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 7.0%.

Check out our latest analysis for NetScout Systems NasdaqGS:NTCT Return on Capital Employed May 6th 2025

In the above chart we have measured NetScout Systems' 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 freeanalyst report for NetScout Systems .

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. We found that the returns on capital employed over the last five years have risen by 187%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, NetScout Systems appears to been achieving more with less, since the business is using 35% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

Our Take On NetScout Systems' ROCE

In a nutshell, we're pleased to see that NetScout Systems has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 22% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

Story Continues

While NetScout Systems looks impressive, no company is worth an infinite price. The  intrinsic value infographic for NTCT helps visualize whether it is currently trading for a fair price.

For those who like to invest in solid companies, check out this freelist of companies with solid balance sheets and high returns on equity.

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

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.

View Comments