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Kennametal (NYSE:KMT) Has More To Do To Multiply In Value Going Forward

Simply Wall St · 4d ago

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Kennametal (NYSE:KMT), we don't think it's current trends fit the mold of a multi-bagger.

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Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Kennametal, this is the formula:

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

0.075 = US$160m ÷ (US$2.5b - US$397m) (Based on the trailing twelve months to September 2025).

Therefore, Kennametal has an ROCE of 7.5%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 11%.

View our latest analysis for Kennametal

roce
NYSE:KMT Return on Capital Employed January 7th 2026

In the above chart we have measured Kennametal'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 Kennametal for free.

The Trend Of ROCE

Over the past five years, Kennametal's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Kennametal in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why Kennametal is paying out 46% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

The Key Takeaway

We can conclude that in regards to Kennametal's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 14% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

While Kennametal doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for KMT on our platform.

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.