Stock Analysis

Treasury Wine Estates (ASX:TWE) Has More To Do To Multiply In Value Going Forward

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If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Although, when we looked at Treasury Wine Estates (ASX:TWE), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Treasury Wine Estates is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.091 = AU$514m ÷ (AU$6.7b - AU$1.0b) (Based on the trailing twelve months to June 2022).

So, Treasury Wine Estates has an ROCE of 9.1%. In absolute terms, that's a low return, but it's much better than the Beverage industry average of 6.2%.

Check out our latest analysis for Treasury Wine Estates

ASX:TWE Return on Capital Employed September 2nd 2022

In the above chart we have measured Treasury Wine Estates' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Treasury Wine Estates here for free.

What The Trend Of ROCE Can Tell Us

In terms of Treasury Wine Estates' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.1% for the last five years, and the capital employed within the business has risen 26% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Treasury Wine Estates' ROCE

As we've seen above, Treasury Wine Estates' returns on capital haven't increased but it is reinvesting in the business. And with the stock having returned a mere 3.4% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you're still interested in Treasury Wine Estates it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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.

Valuation is complex, but we're helping make it simple.

Find out whether Treasury Wine Estates is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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Treasury Wine Estates

Treasury Wine Estates Limited operates as a wine company primarily in Australia, New Zealand, Asia, Europe, the Middle East, Africa, and the Americas.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Future Growth3
Past Performance4
Financial Health5

Read more about these checks in the individual report sections or in our analysis model.

Excellent balance sheet with proven track record.