U.S. Markets open in 1 hr 25 mins
  • S&P Futures

    4,356.25
    +14.75 (+0.34%)
     
  • Dow Futures

    34,066.00
    +11.00 (+0.03%)
     
  • Nasdaq Futures

    14,258.00
    +99.50 (+0.70%)
     
  • Russell 2000 Futures

    1,975.50
    +2.80 (+0.14%)
     
  • Crude Oil

    88.25
    +0.90 (+1.03%)
     
  • Gold

    1,806.90
    -22.80 (-1.25%)
     
  • Silver

    23.03
    -0.78 (-3.26%)
     
  • EUR/USD

    1.1161
    -0.0084 (-0.7478%)
     
  • 10-Yr Bond

    1.8480
    0.0000 (0.00%)
     
  • Vix

    30.75
    -0.41 (-1.32%)
     
  • GBP/USD

    1.3392
    -0.0071 (-0.5250%)
     
  • USD/JPY

    115.3670
    +0.7070 (+0.6166%)
     
  • BTC-USD

    36,703.19
    -1,126.13 (-2.98%)
     
  • CMC Crypto 200

    838.21
    -17.60 (-2.06%)
     
  • FTSE 100

    7,514.60
    +44.82 (+0.60%)
     
  • Nikkei 225

    26,170.30
    -841.00 (-3.11%)
     

Returns At Cabot (NYSE:CBT) Appear To Be Weighed Down

  • Oops!
    Something went wrong.
    Please try again later.
·2 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • CBT

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Cabot (NYSE:CBT), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Cabot, this is the formula:

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

0.13 = US$310m ÷ (US$3.0b - US$647m) (Based on the trailing twelve months to March 2021).

Therefore, Cabot has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 8.3% it's much better.

See our latest analysis for Cabot

roce
roce

Above you can see how the current ROCE for Cabot 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 Cabot here for free.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Cabot's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Cabot in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From Cabot's ROCE

In a nutshell, Cabot has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 31% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Cabot does have some risks, we noticed 3 warning signs (and 1 which can't be ignored) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.