Stock Analysis

Here's What To Make Of Thunderbird Entertainment Group's (CVE:TBRD) Decelerating Rates Of Return

TSXV:TBRD
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Thunderbird Entertainment Group (CVE:TBRD) and its ROCE trend, we weren't exactly thrilled.

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

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. To calculate this metric for Thunderbird Entertainment Group, this is the formula:

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

0.091 = CA$8.7m ÷ (CA$202m - CA$107m) (Based on the trailing twelve months to March 2022).

Therefore, Thunderbird Entertainment Group has an ROCE of 9.1%. In absolute terms, that's a low return, but it's much better than the Entertainment industry average of 6.9%.

See our latest analysis for Thunderbird Entertainment Group

roce
TSXV:TBRD Return on Capital Employed October 20th 2022

Above you can see how the current ROCE for Thunderbird Entertainment Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Thunderbird Entertainment Group.

How Are Returns Trending?

In terms of Thunderbird Entertainment Group's historical ROCE trend, it doesn't exactly demand attention. The company has employed 105% more capital in the last four years, and the returns on that capital have remained stable at 9.1%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a separate but related note, it's important to know that Thunderbird Entertainment Group has a current liabilities to total assets ratio of 53%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

In conclusion, Thunderbird Entertainment Group has been investing more capital into the business, but returns on that capital haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 132% gain to shareholders who have held over the last three years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Thunderbird Entertainment Group does have some risks though, and we've spotted 1 warning sign for Thunderbird Entertainment Group that you might be interested in.

While Thunderbird Entertainment Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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

Find out whether Thunderbird Entertainment Group 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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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.