Countryside Properties (LON:CSP) Will Be Hoping To Turn Its Returns On Capital Around

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Countryside Properties (LON:CSP), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Countryside Properties:

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

0.019 = UK£25m ÷ (UK£1.7b - UK£354m) (Based on the trailing twelve months to March 2021).

So, Countryside Properties has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 10%.

Check out our latest analysis for Countryside Properties

Above you can see how the current ROCE for Countryside Properties 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 Countryside Properties.

What Can We Tell From Countryside Properties' ROCE Trend?

Unfortunately, the trend isn't great with ROCE falling from 15% five years ago, while capital employed has grown 116%. Usually this isn't ideal, but given Countryside Properties conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Countryside Properties' earnings and if they change as a result from the capital raise.

Our Take On Countryside Properties' ROCE

We're a bit apprehensive about Countryside Properties because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Since the stock has skyrocketed 124% over the last five years, it looks like investors have high expectations of the stock. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Countryside Properties could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Countryside Properties 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.

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.

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