If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Jamieson Wellness (TSE:JWEL) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Jamieson Wellness, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.11 = CA$57m ÷ (CA$579m – CA$70m) (Based on the trailing twelve months to March 2020).
Thus, Jamieson Wellness has an ROCE of 11%. In isolation, that’s a pretty standard return but against the Personal Products industry average of 15%, it’s not as good.
Check out our latest analysis for Jamieson Wellness
Above you can see how the current ROCE for Jamieson Wellness 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.
The Trend Of ROCE
The trends we’ve noticed at Jamieson Wellness are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 47% more capital is being employed now too. So we’re very much inspired by what we’re seeing at Jamieson Wellness thanks to its ability to profitably reinvest capital.
Our Take On Jamieson Wellness’ ROCE
All in all, it’s terrific to see that Jamieson Wellness is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 102% to shareholders over the last three years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
One more thing: We’ve identified 3 warning signs with Jamieson Wellness (at least 1 which doesn’t sit too well with us) , and understanding these would certainly be useful.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
This article by Simply Wall St is general in nature. 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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