If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Gartner (NYSE:IT) we really liked what we saw.

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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 Gartner is:

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

0.26 = US$1.2b ÷ (US$8.5b – US$4.0b) (Based on the trailing twelve months to December 2024).

Thus, Gartner has an ROCE of 26%. That’s a fantastic return and not only that, it outpaces the average of 9.8% earned by companies in a similar industry.

View our latest analysis for Gartner

In the above chart we have measured Gartner’s prior ROCE against its prior performance, but the future is arguably more important. If you’d like, you can check out the forecasts from the analysts covering Gartner for free.

Gartner’s ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 190% in that same time. So it’s likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn’t changed considerably. The company is doing well in that sense, and it’s worth investigating what the management team has planned for long term growth prospects.

On a side note, Gartner’s current liabilities are still rather high at 47% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we’d like to see this reduce as that would mean fewer obligations bearing risks.

To bring it all together, Gartner has done well to increase the returns it’s generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.