SiteOne Landscape Supply (NYSE:SITE) Is Experiencing Growth In Returns On Capital
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. So on that note, SiteOne Landscape Supply (NYSE:SITE) looks quite promising in regards to its trends of return on capital.
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. Analysts use this formula to calculate it for SiteOne Landscape Supply:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = US$370m ÷ (US$2.6b - US$613m) (Based on the trailing twelve months to July 2022).
Thus, SiteOne Landscape Supply has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 15% generated by the Trade Distributors industry.
See our latest analysis for SiteOne Landscape Supply
In the above chart we have measured SiteOne Landscape Supply's 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 SiteOne Landscape Supply.
What The Trend Of ROCE Can Tell Us
The trends we've noticed at SiteOne Landscape Supply are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 19%. The amount of capital employed has increased too, by 180%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
What We Can Learn From SiteOne Landscape Supply's ROCE
In summary, it's great to see that SiteOne Landscape Supply can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a solid 64% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if SiteOne Landscape Supply can keep these trends up, it could have a bright future ahead.
On a separate note, we've found 1 warning sign for SiteOne Landscape Supply you'll probably want to 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.
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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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