Is Boston Beer Company (NYSE:SAM) Likely To Turn Things Around?
What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Boston Beer Company (NYSE:SAM), we don't think it's current trends fit the mold of a multi-bagger.
What is 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 Boston Beer Company is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$149m ÷ (US$1.2b - US$187m) (Based on the trailing twelve months to March 2020).
Therefore, Boston Beer Company has an ROCE of 15%. That's a pretty standard return and it's in line with the industry average of 15%.
Check out our latest analysis for Boston Beer Company
Above you can see how the current ROCE for Boston Beer Company compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Boston Beer Company here for free.
So How Is Boston Beer Company's ROCE Trending?
In terms of Boston Beer Company's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 28%, but since then they've fallen to 15%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
Our Take On Boston Beer Company's ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Boston Beer Company. And long term investors must be optimistic going forward because the stock has returned a huge 199% to shareholders in the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.
Boston Beer Company does have some risks though, and we've spotted 2 warning signs for Boston Beer Company that you might be interested in.
While Boston Beer Company isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
This article by Simply Wall St is general in nature. 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.
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