Why We’re Not Keen On Lindblad Expeditions Holdings, Inc.’s (NASDAQ:LIND) 8.2% Return On Capital
Today we’ll evaluate Lindblad Expeditions Holdings, Inc. (NASDAQ:LIND) to determine whether it could have potential as an investment idea. In particular, we’ll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.
Firstly, we’ll go over how we calculate ROCE. Then we’ll compare its ROCE to similar companies. And finally, we’ll look at how its current liabilities are impacting its ROCE.
Return On Capital Employed (ROCE): What is it?
ROCE measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. Generally speaking a higher ROCE is better. Ultimately, it is a useful but imperfect metric. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since ‘No two businesses are exactly alike.’
So, How Do We Calculate ROCE?
Analysts use this formula to calculate return on capital employed:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
Or for Lindblad Expeditions Holdings:
0.082 = US$12m ÷ (US$465m – US$144m) (Based on the trailing twelve months to September 2018.)
Therefore, Lindblad Expeditions Holdings has an ROCE of 8.2%.
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Does Lindblad Expeditions Holdings Have A Good ROCE?
ROCE is commonly used for comparing the performance of similar businesses. Using our data, Lindblad Expeditions Holdings’s ROCE appears to be around the 10% average of the Hospitality industry. Separate from how Lindblad Expeditions Holdings stacks up against its industry, its ROCE in absolute terms is mediocre; relative to the returns on government bonds. It is possible that there are more rewarding investments out there.
Lindblad Expeditions Holdings’s current ROCE of 8.2% is lower than its ROCE in the past, which was 11%, 3 years ago. This makes us wonder if the business is facing new challenges.
It is important to remember that ROCE shows past performance, and is not necessarily predictive. ROCE can be misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. ROCE is only a point-in-time measure. Since the future is so important for investors, you should check out our free report on analyst forecasts for Lindblad Expeditions Holdings.
Do Lindblad Expeditions Holdings’s Current Liabilities Skew Its ROCE?
Liabilities, such as supplier bills and bank overdrafts, are referred to as current liabilities if they need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To counter this, investors can check if a company has high current liabilities relative to total assets.
Lindblad Expeditions Holdings has total liabilities of US$144m and total assets of US$465m. Therefore its current liabilities are equivalent to approximately 31% of its total assets. Lindblad Expeditions Holdings’s middling level of current liabilities have the effect of boosting its ROCE a bit.
The Bottom Line On Lindblad Expeditions Holdings’s ROCE
Unfortunately, its ROCE is still uninspiring, and there are potentially more attractive prospects out there. Of course you might be able to find a better stock than Lindblad Expeditions Holdings. So you may wish to see this free collection of other companies that have grown earnings strongly.
I will like Lindblad Expeditions Holdings better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
