Has Chase (NYSEMKT:CCF) Got What It Takes To Become A Multi-Bagger?
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 briefly looking over the numbers, we don't think Chase (NYSEMKT:CCF) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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. The formula for this calculation on Chase is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$48m ÷ (US$361m - US$29m) (Based on the trailing twelve months to November 2020).
So, Chase has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 7.1% it's much better.
Check out our latest analysis for Chase
Historical performance is a great place to start when researching a stock so above you can see the gauge for Chase's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Chase, check out these free graphs here.
What Can We Tell From Chase's ROCE Trend?
When we looked at the ROCE trend at Chase, we didn't gain much confidence. Around five years ago the returns on capital were 20%, but since then they've fallen to 15%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
The Bottom Line
In summary, Chase is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 167% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
On a separate note, we've found 1 warning sign for Chase you'll probably want to know about.
While Chase may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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