Capital investment trends at Aspen Technology (NASDAQ:AZPN) appear strong

There are a few key trends to look out for if we want to identify the next multi-bagger. Typically, we will want to notice a growth trend to return to on capital employed (ROCE) and at the same time, a based capital employed. This shows us that it is a compounding machine, capable of continuously reinvesting its profits back into the business and generating higher returns. Therefore, when we looked at ROCE trends at Aspen Technology (NASDAQ:AZPN), we liked what we saw.

Understanding return on capital employed (ROCE)

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. Analysts use this formula to calculate it for Aspen Technology:

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

0.33 = $371 million ÷ ($1.3 billion – $180 million) (Based on the last twelve months to September 2021).

So, Aspen Technology posted a ROCE of 33%. In absolute terms, this is an excellent performance and is even better than the software industry average of 11%.

Check out our latest analysis for Aspen Technology

NasdaqGS: AZPN Return on Capital Employed November 26, 2021

In the chart above, we measured Aspen Technology’s past ROCE against its past performance, but the future is arguably more important. If you want to see what analysts predict for the future, you should check out our free report for Aspen Technology.

What can we say about Aspen Technology’s ROCE trend?

In terms of Aspen Technology’s ROCE history, that’s pretty impressive. The company has consistently gained 33% over the past three years and the capital employed within the company has increased by 72% over this period. With such high returns, it’s great that the company can continually reinvest its money at such attractive rates of return. If these trends can continue, we wouldn’t be surprised if the company went multi-bagger.

Incidentally, Aspen Technology has done well to reduce current liabilities to 14% of total assets over the past three years. Indeed, suppliers now finance the company less, which can reduce certain elements of risk.

In conclusion…

Ultimately, the company has proven that it can reinvest its capital at high rates of return, which you’ll recall is a trait of a multi-bagger. And the stock has done incredibly well, returning 187% over the past five years, so long-term investors are no doubt pleased with the result. So while the stock may be more “expensive” than it was before, we believe the strong fundamentals warrant this stock for further research.

Although Aspen Technology sounds impressive, no company is worth an infinite price. The intrinsic value infographic of our free research report helps to visualize if AZPN is currently trading at a fair price.

If you want to find more stocks that have generated high returns, check out this free list of stocks with strong balance sheets that also generate high returns on equity.

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