Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Hubbell (NYSE:HUBB) we really liked what we saw.

Understanding 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. Analysts use this formula to calculate it for Hubbell:

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

0.20 = US$1.1b ÷ (US$6.7b - US$1.3b) (Based on the trailing twelve months to December 2024).

Thus, Hubbell has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Electrical industry average of 11%.

See our latest analysis for Hubbell

Above you can see how the current ROCE for Hubbell 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 Hubbell .

The Trend Of ROCE

We like the trends that we're seeing from Hubbell. Over the last five years, returns on capital employed have risen substantially to 20%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 33%. So we're very much inspired by what we're seeing at Hubbell thanks to its ability to profitably reinvest capital.

The Key Takeaway

In summary, it's great to see that Hubbell can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 221% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Hubbell can keep these trends up, it could have a bright future ahead.

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

Hubbell is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.