Watts Water Technologies: A Hidden Gem with Impressive Return on Investment

Those who wish to invest in stocks long-term and hope for a promising appreciation in value should focus on certain underlying trends. Two essential indicators in this context are a growing Return on Capital Employed (ROCE) and an expansion of the capital employed. These features often point to a company with an excellent business model and numerous profitable reinvestment opportunities. In our analysis of Watts Water Technologies, these very qualities stood out. ROCE, the annual pre-tax profit ratio of a company to the capital employed, is calculated for Watts Water Technologies as follows: **Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)** Accordingly, Watts Water Technologies' return on capital is 19%. This is satisfactory in itself, but it significantly exceeds the industry average for the manufacturing sector, which stands at 13%. What is particularly noteworthy is the positive development of the company: over the past five years, the return on capital has significantly increased to 19%. At the same time, the capital employed has impressively grown by 52%. These capabilities to reinvest capital profitably make Watts Water Technologies an attractive company. A company that can continuously increase its return on capital while simultaneously reinvesting in itself consistently is extremely desirable. Watts Water Technologies exhibits precisely these qualities. The stock has performed excellently over the past five years, which investors have certainly taken note of. Therefore, it is worthwhile to closely monitor future trends. A small caveat remains: we have identified a warning sign at Watts Water Technologies, understanding which is crucial for the investment process. Although Watts Water Technologies is not currently achieving the highest returns, we have compiled a list of companies that currently achieve a return on equity of over 25%. Check out this free list here.