Slowing Rates Of Return At JDE Peet's (AMS:JDEP) Leave Little Room For Excitement
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at JDE Peet's (AMS:JDEP) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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. Analysts use this formula to calculate it for JDE Peet's:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.044 = €762m ÷ (€22b - €4.7b) (Based on the trailing twelve months to June 2023).
Thus, JDE Peet's has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.5%.
See our latest analysis for JDE Peet's
Above you can see how the current ROCE for JDE Peet's 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 JDE Peet's here for free.
So How Is JDE Peet's' ROCE Trending?
Over the past five years, JDE Peet's' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect JDE Peet's to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that JDE Peet's has been paying out a decent 38% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
In Conclusion...
We can conclude that in regards to JDE Peet's' returns on capital employed and the trends, there isn't much change to report on. And in the last three years, the stock has given away 20% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.
JDE Peet's does have some risks though, and we've spotted 2 warning signs for JDE Peet's that you might be interested in.
While JDE Peet's 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.
