Investors Met With Slowing Returns on Capital At LCI Industries (NYSE:LCII)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at LCI Industries (NYSE:LCII) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on LCI Industries is:

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

0.097 = US$261m ÷ (US$3.2b - US$492m) (Based on the trailing twelve months to September 2025).

So, LCI Industries has an ROCE of 9.7%. In absolute terms, that's a low return but it's around the Auto Components industry average of 11%.

Check out our latest analysis for LCI Industries

In the above chart we have measured LCI Industries' 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 LCI Industries .

What The Trend Of ROCE Can Tell Us

In terms of LCI Industries' historical ROCE trend, it doesn't exactly demand attention. The company has employed 57% more capital in the last five years, and the returns on that capital have remained stable at 9.7%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

As we've seen above, LCI Industries' returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 4.5% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to continue researching LCI Industries, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.