Stock Analysis

We Like These Underlying Trends At Cargojet (TSE:CJT)

  •  Updated
TSX:CJT
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Cargojet (TSE:CJT) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Cargojet, this is the formula:

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

0.065 = CA$66m ÷ (CA$1.1b - CA$107m) (Based on the trailing twelve months to March 2020).

Thus, Cargojet has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 8.6%.

Check out our latest analysis for Cargojet

TSX:CJT Return on Capital Employed July 1st 2020
TSX:CJT Return on Capital Employed July 1st 2020

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

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.5%. The amount of capital employed has increased too, by 200%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

All in all, it's terrific to see that Cargojet is reaping the rewards from prior investments and is growing its capital base. And a remarkable 532% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Cargojet can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Cargojet (of which 1 makes us a bit uncomfortable!) that you should know about.

While Cargojet 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.

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