Stock Analysis

Superior Industries International (NYSE:SUP) Is Looking To Continue Growing Its Returns On Capital

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NYSE:SUP
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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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Superior Industries International (NYSE:SUP) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Superior Industries International is:

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

0.082 = US$66m ÷ (US$1.1b - US$274m) (Based on the trailing twelve months to June 2022).

So, Superior Industries International has an ROCE of 8.2%. On its own, that's a low figure but it's around the 10.0% average generated by the Auto Components industry.

Check out our latest analysis for Superior Industries International

roce
NYSE:SUP Return on Capital Employed September 5th 2022

In the above chart we have measured Superior Industries International's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Superior Industries International here for free.

How Are Returns Trending?

We're pretty happy with how the ROCE has been trending at Superior Industries International. We found that the returns on capital employed over the last five years have risen by 225%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Superior Industries International appears to been achieving more with less, since the business is using 44% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 25% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line On Superior Industries International's ROCE

In a nutshell, we're pleased to see that Superior Industries International has been able to generate higher returns from less capital. Given the stock has declined 64% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing, we've spotted 2 warning signs facing Superior Industries International that you might find interesting.

While Superior Industries 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.

What are the risks and opportunities for Superior Industries International?

Superior Industries International, Inc. designs, manufactures, and sells aluminum wheels to the original equipment manufacturers and aftermarket distributors in North America and Europe.

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Rewards

  • Trading at 62.4% below our estimate of its fair value

  • Earnings are forecast to grow 187.31% per year

Risks

  • Shareholders have been diluted in the past year

  • Significant insider selling over the past 3 months

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About NYSE:SUP

Superior Industries International

Superior Industries International, Inc. designs, manufactures, and sells aluminum wheels to the original equipment manufacturers and aftermarket distributors in North America and Europe.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation5
Future Growth3
Past Performance0
Financial Health3
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Undervalued with moderate growth potential.