CCL Industries (TSE:CCL.B) Has Some Way To Go To Become A Multi-Bagger

By
Simply Wall St
Published
November 10, 2021
TSX:CCL.B
Source: Shutterstock

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at CCL Industries' (TSE:CCL.B) ROCE trend, we were pretty happy with what we saw.

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 CCL Industries, this is the formula:

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

0.14 = CA$851m ÷ (CA$7.4b - CA$1.4b) (Based on the trailing twelve months to June 2021).

Therefore, CCL Industries has an ROCE of 14%. That's a pretty standard return and it's in line with the industry average of 14%.

View our latest analysis for CCL Industries

roce
TSX:CCL.B Return on Capital Employed November 11th 2021

In the above chart we have measured CCL Industries' 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 CCL Industries here for free.

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 62% in that time. 14% is a pretty standard return, and it provides some comfort knowing that CCL Industries has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

The main thing to remember is that CCL Industries has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 64% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a final note, we've found 2 warning signs for CCL Industries that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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