SiteOne Landscape Supply's (NYSE:SITE) Returns On Capital Are Heading Higher
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at SiteOne Landscape Supply (NYSE:SITE) so let's look a bit deeper.
Return On Capital Employed (ROCE): What is it?
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. To calculate this metric for SiteOne Landscape Supply, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = US$344m ÷ (US$2.4b - US$598m) (Based on the trailing twelve months to April 2022).
So, SiteOne Landscape Supply has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 14% generated by the Trade Distributors industry.
Check out our latest analysis for SiteOne Landscape Supply
Above you can see how the current ROCE for SiteOne Landscape Supply compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From SiteOne Landscape Supply's ROCE Trend?
We like the trends that we're seeing from SiteOne Landscape Supply. Over the last five years, returns on capital employed have risen substantially to 19%. The amount of capital employed has increased too, by 170%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Key Takeaway
All in all, it's terrific to see that SiteOne Landscape Supply is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
SiteOne Landscape Supply does have some risks though, and we've spotted 1 warning sign for SiteOne Landscape Supply that you might be interested in.
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.
