TFI International's (TSE:TFII) Returns Have Hit A Wall

By
Simply Wall St
Published
June 12, 2021
TSX:TFII

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at TFI International (TSE:TFII), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for TFI International:

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

0.099 = US$355m ÷ (US$4.2b - US$658m) (Based on the trailing twelve months to March 2021).

Therefore, TFI International has an ROCE of 9.9%. Even though it's in line with the industry average of 9.9%, it's still a low return by itself.

Check out our latest analysis for TFI International

roce
TSX:TFII Return on Capital Employed June 13th 2021

Above you can see how the current ROCE for TFI International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering TFI International here for free.

What Can We Tell From TFI International's ROCE Trend?

The returns on capital haven't changed much for TFI International in recent years. Over the past five years, ROCE has remained relatively flat at around 9.9% and the business has deployed 82% more capital into its operations. 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.

In Conclusion...

Long story short, while TFI International has been reinvesting its capital, the returns that it's generating haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 419% gain to shareholders who have held over the last five 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.

Like most companies, TFI International does come with some risks, and we've found 3 warning signs that you should be aware of.

While TFI International 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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This article by Simply Wall St is general in nature. 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.
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