Is PageGroup (LON:PAGE) Likely To Turn Things Around?
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at PageGroup (LON:PAGE), it didn't seem to tick all of these boxes.
What is Return On Capital Employed (ROCE)?
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 PageGroup is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = UK£71m ÷ (UK£677m - UK£243m) (Based on the trailing twelve months to June 2020).
Therefore, PageGroup has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 13% generated by the Professional Services industry.
View our latest analysis for PageGroup
In the above chart we have measured PageGroup's 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 report on analyst forecasts for the company.
So How Is PageGroup's ROCE Trending?
On the surface, the trend of ROCE at PageGroup doesn't inspire confidence. To be more specific, ROCE has fallen from 34% over the last five years. However it looks like PageGroup might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
Our Take On PageGroup's ROCE
In summary, PageGroup is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 1.2% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
Like most companies, PageGroup does come with some risks, and we've found 1 warning sign that you should be aware of.
While PageGroup 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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