If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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, Pinterest (NYSE:PINS) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Pinterest, this is the formula:

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

0.051 = US$157m ÷ (US$3.5b - US$409m) (Based on the trailing twelve months to September 2024).

Thus, Pinterest has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 6.8%.

Check out our latest analysis for Pinterest

Above you can see how the current ROCE for Pinterest compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Pinterest for free.

How Are Returns Trending?

Pinterest has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 5.1% which is a sight for sore eyes. In addition to that, Pinterest is employing 44% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Key Takeaway

To the delight of most shareholders, Pinterest has now broken into profitability. And with a respectable 54% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

While Pinterest isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.