Financial metrics can help identify potential multi-baggers, notably an increasing return on capital employed (ROCE) and an expanding capital base. TransUnion’s ROCE stands at 7.4%, underperforming the Professional Services industry average of 16%. Over five years, TransUnion’s ROCE has remained flat, while it increased capital employed by 52%, yet failed to generate higher returns. With only a 1.8% total return to shareholders over the same period, it suggests investors should consider other options for substantial growth. Additionally, there are two warning signs with TransUnion that potential investors should be aware of.
Have you considered that certain financial metrics might indicate a potential multi-bagger? Initially, we should look for a consistent return on capital employed (ROCE) that is on the rise, along with a growing base of capital employed. In essence, these businesses function as compounding machines, continually reinvesting their profits at increasingly higher rates of return. That said, upon a first look at TransUnion (NYSE:TRU), we aren’t overly impressed by the trends in returns, but let’s delve deeper.
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If you’re uncertain about what ROCE entails, it quantifies the amount of pre-tax profits a company can produce from the capital invested in its operations. To determine this metric for TransUnion, you can use the following formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.074 = US$733m ÷ (US$11b – US$1.1b) (Based on the trailing twelve months ending December 2024).
Consequently, TransUnion has an ROCE of 7.4%. This is a low return in absolute terms and lags behind the Professional Services industry average of 16%.
Explore our most recent analysis for TransUnion
In the chart above, we compare TransUnion’s past ROCE with its historical performance, but future performance is arguably more critical. If you would like, you can review the forecasts from analysts covering TransUnion for free.
There are better returns on capital available than what TransUnion is currently delivering. Over the last five years, ROCE has remained stagnant at around 7.4%, while the company has invested 52% more capital into its operations. Despite the increased capital, the returns on these investments have not yielded significant returns.
In summary, while TransUnion has been reinvesting its capital, the returns generated have not improved. Investors may be aware of these trends, as the stock has only provided a return of 1.8% to shareholders over the past five years. Therefore, if you are searching for a multi-bagger, consider exploring other alternatives.
Additionally, we’ve pinpointed 2 warning signs regarding TransUnion (with at least 1 that warrants attention), and comprehending these factors could prove beneficial.