Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. With that in mind, the ROCE of Legacy Housing (NASDAQ:LEGH) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

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 Legacy Housing is:

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

0.13 = US$63m ÷ (US$510m - US$39m) (Based on the trailing twelve months to March 2024).

So, Legacy Housing has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Durables industry average of 15%.

Check out our latest analysis for Legacy Housing

Above you can see how the current ROCE for Legacy Housing compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Legacy Housing .

So How Is Legacy Housing's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 112% more capital into its operations. Since 13% 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.

What We Can Learn From Legacy Housing's ROCE

The main thing to remember is that Legacy Housing has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 106% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you're still interested in Legacy Housing it's worth checking out our FREE intrinsic value approximation for LEGH to see if it's trading at an attractive price in other respects.