Returns On Capital At Westshore Terminals Investment (TSE:WTE) Paint A Concerning Picture
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 Westshore Terminals Investment (TSE:WTE), we don't think it's current trends fit the mold of a multi-bagger.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Westshore Terminals Investment is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.092 = CA$111m ÷ (CA$1.3b - CA$84m) (Based on the trailing twelve months to June 2023).
Thus, Westshore Terminals Investment has an ROCE of 9.2%. Even though it's in line with the industry average of 9.2%, it's still a low return by itself.
Check out our latest analysis for Westshore Terminals Investment
In the above chart we have measured Westshore Terminals Investment's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Westshore Terminals Investment here for free.
How Are Returns Trending?
On the surface, the trend of ROCE at Westshore Terminals Investment doesn't inspire confidence. Over the last five years, returns on capital have decreased to 9.2% from 23% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.
The Key Takeaway
Bringing it all together, while we're somewhat encouraged by Westshore Terminals Investment's reinvestment in its own business, we're aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 29% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
If you'd like to know about the risks facing Westshore Terminals Investment, we've discovered 1 warning sign that you should be aware of.
While Westshore Terminals Investment 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.
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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.
