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Returns On Capital At ACCO Brands (NYSE:ACCO) Have Stalled

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 ACCO Brands (NYSE:ACCO), we don't think it's current trends fit the mold of a multi-bagger.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for ACCO Brands, this is the formula:

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

0.072 = US$167m ÷ (US$2.8b - US$504m) (Based on the trailing twelve months to September 2022).

Thus, ACCO Brands has an ROCE of 7.2%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 9.3%.

See our latest analysis for ACCO Brands

roce
roce

In the above chart we have measured ACCO Brands' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for ACCO Brands.

The Trend Of ROCE

There hasn't been much to report for ACCO Brands' 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 ACCO Brands in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On ACCO Brands' ROCE

In summary, ACCO Brands isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 47% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we found 4 warning signs for ACCO Brands (1 is concerning) you should be aware of.

While ACCO Brands isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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