Returns At SunOpta (NASDAQ:STKL) Appear To Be Weighed Down
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Although, when we looked at SunOpta (NASDAQ:STKL), it didn't seem to tick all of these boxes.
Understanding 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. Analysts use this formula to calculate it for SunOpta:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = US$34m ÷ (US$878m - US$176m) (Based on the trailing twelve months to April 2023).
Therefore, SunOpta has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Food industry average of 9.7%.
View our latest analysis for SunOpta
Above you can see how the current ROCE for SunOpta 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 SunOpta here for free.
How Are Returns Trending?
The returns on capital haven't changed much for SunOpta in recent years. The company has employed 25% more capital in the last five years, and the returns on that capital have remained stable at 4.9%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
On a side note, SunOpta has done well to reduce current liabilities to 20% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.
The Key Takeaway
In summary, SunOpta has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 23% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
If you'd like to know about the risks facing SunOpta, we've discovered 2 warning signs that you should be aware of.
While SunOpta isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
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