Stock Analysis

Taiga Building Products (TSE:TBL) Is Reinvesting To Multiply In Value

TSX:TBL
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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Taiga Building Products' (TSE:TBL) trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Taiga Building Products is:

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

0.27 = CA$128m ÷ (CA$618m - CA$153m) (Based on the trailing twelve months to December 2022).

Therefore, Taiga Building Products has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 20%.

See our latest analysis for Taiga Building Products

roce
TSX:TBL Return on Capital Employed March 11th 2023

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Taiga Building Products, check out these free graphs here.

The Trend Of ROCE

It's hard not to be impressed by Taiga Building Products' returns on capital. The company has employed 245% more capital in the last five years, and the returns on that capital have remained stable at 27%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Taiga Building Products can keep this up, we'd be very optimistic about its future.

On a side note, Taiga Building Products has done well to reduce current liabilities to 25% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line On Taiga Building Products' ROCE

In short, we'd argue Taiga Building Products has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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

Find out whether Taiga Building Products 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.

View the Free Analysis

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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.