The Trends At James Latham (LON:LTHM) That You Should Know About

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over James Latham's (LON:LTHM) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for James Latham:

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

0.13 = UK£16m ÷ (UK£154m - UK£30m) (Based on the trailing twelve months to March 2020).

Thus, James Latham has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Trade Distributors industry average of 12%.

Check out our latest analysis for James Latham

Historical performance is a great place to start when researching a stock so above you can see the gauge for James Latham's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of James Latham, check out these free graphs here.

What Can We Tell From James Latham's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 61% more capital into its operations. 13% is a pretty standard return, and it provides some comfort knowing that James Latham has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

To sum it up, James Latham has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 46% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you're still interested in James Latham it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While James Latham 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.

When trading James Latham or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.