Sunday, January 5, 2025

Under The Bonnet, Hackett Group’s (NASDAQ:HCKT) Returns Look Impressive

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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Hackett Group (NASDAQ:HCKT) we really liked what we saw.

For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Hackett Group is:

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

0.39 = US$55m ÷ (US$191m – US$49m) (Based on the trailing twelve months to September 2024).

Thus, Hackett Group has an ROCE of 39%. In absolute terms that’s a great return and it’s even better than the IT industry average of 11%.

See our latest analysis for Hackett Group

NasdaqGS:HCKT Return on Capital Employed January 3rd 2025

In the above chart we have measured Hackett Group’s prior ROCE against its prior performance, but the future is arguably more important. If you’d like to see what analysts are forecasting going forward, you should check out our free analyst report for Hackett Group .

Hackett Group has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 66% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company’s efficiencies. It’s worth looking deeper into this though because while it’s great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

To sum it up, Hackett Group is collecting higher returns from the same amount of capital, and that’s impressive. And a remarkable 104% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Before jumping to any conclusions though, we need to know what value we’re getting for the current share price. That’s where you can check out our FREE intrinsic value estimation for HCKT that compares the share price and estimated value.

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