Slowing Rates Of Return At O-I Glass (NYSE:OI) Leave Little Room For Excitement
There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating O-I Glass (NYSE:OI), we don't think it's current trends fit the mold of a multi-bagger.
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 O-I Glass, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.094 = US$667m ÷ (US$8.9b - US$1.8b) (Based on the trailing twelve months to March 2022).
So, O-I Glass has an ROCE of 9.4%. Even though it's in line with the industry average of 9.4%, it's still a low return by itself.
View our latest analysis for O-I Glass
Above you can see how the current ROCE for O-I Glass 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 O-I Glass here for free.
What Does the ROCE Trend For O-I Glass Tell Us?
There hasn't been much to report for O-I Glass' returns and its level of capital employed because both metrics have been steady for the past five years. 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 O-I Glass to be a multi-bagger going forward.
The Bottom Line
In summary, O-I Glass isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 48% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
One more thing to note, we've identified 1 warning sign with O-I Glass and understanding this should be part of your investment process.
While O-I Glass isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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