Should We Be Excited About The Trends Of Returns At Snowman Logistics (NSE:SNOWMAN)?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Snowman Logistics (NSE:SNOWMAN), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. Analysts use this formula to calculate it for Snowman Logistics:

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

0.024 = ₹141m ÷ (₹6.3b - ₹393m) (Based on the trailing twelve months to December 2020).

So, Snowman Logistics has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 9.6%.

View our latest analysis for Snowman Logistics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Snowman Logistics' ROCE against it's prior returns. If you're interested in investigating Snowman Logistics' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Snowman Logistics, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.4% from 4.3% five years ago. However it looks like Snowman Logistics might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Snowman Logistics' ROCE

Bringing it all together, while we're somewhat encouraged by Snowman Logistics' reinvestment in its own business, we're aware that returns are shrinking. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Snowman Logistics (of which 1 is a bit concerning!) that you should know about.

While Snowman Logistics 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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