What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after briefly looking over the numbers, we don’t think Cognizant Technology Solutions (NASDAQ:CTSH) has the makings of a multi-bagger going forward, but let’s have a look at why that may be.
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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 Cognizant Technology Solutions:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.19 = US$3.2b ÷ (US$20b – US$3.2b) (Based on the trailing twelve months to June 2025).
Therefore, Cognizant Technology Solutions has an ROCE of 19%. In absolute terms, that’s a satisfactory return, but compared to the IT industry average of 9.8% it’s much better.
Check out our latest analysis for Cognizant Technology Solutions
In the above chart we have measured Cognizant Technology Solutions’ prior ROCE against its prior performance, but the future is arguably more important. If you’re interested, you can view the analysts predictions in our free analyst report for Cognizant Technology Solutions .
Things have been pretty stable at Cognizant Technology Solutions, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn’t reinvesting in itself, so it’s plausible that it’s past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn’t expect Cognizant Technology Solutions to be a multi-bagger going forward.
In summary, Cognizant Technology Solutions isn’t compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren’t typical of multi-baggers, so if that’s what you’re after, we think you might have more luck elsewhere.
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