The Trend Of High Returns At Century Communities (NYSE:CCS) Has Us Very Interested

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. 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. Speaking of which, we noticed some great changes in Century Communities’ (NYSE:CCS) returns on capital, so let’s have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Century Communities is:

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

0.24 = US$800m ÷ (US$3.9b – US$588m) (Based on the trailing twelve months to September 2022).

So, Century Communities has an ROCE of 24%. That’s a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

Our analysis indicates that CCS is potentially undervalued!

Above you can see how the current ROCE for Century Communities compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’re interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Century Communities’ ROCE Trend?

Century Communities is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 24%. 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 116%. So we’re very much inspired by what we’re seeing at Century Communities thanks to its ability to profitably reinvest capital.

In Conclusion…

To sum it up, Century Communities has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 55% 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. Therefore, we think it would be worth your time to check if these trends are going to continue.

One final note, you should learn about the 4 warning signs we’ve spotted with Century Communities (including 3 which make us uncomfortable) .

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.