Here's What Jewett-Cameron Trading's (NASDAQ:JCTC.F) Strong Returns On Capital Mean

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ergo, when we looked at the ROCE trends at Jewett-Cameron Trading (NASDAQ:JCTC.F), we liked what we saw.

What is 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. The formula for this calculation on Jewett-Cameron Trading is:

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

0.24 = US$5.3m ÷ (US$27m - US$5.1m) (Based on the trailing twelve months to May 2021).

Thus, Jewett-Cameron Trading has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for Jewett-Cameron Trading

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Jewett-Cameron Trading has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Jewett-Cameron Trading Tell Us?

We'd be pretty happy with returns on capital like Jewett-Cameron Trading. Over the past five years, ROCE has remained relatively flat at around 24% and the business has deployed 22% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Jewett-Cameron Trading can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In short, we'd argue Jewett-Cameron Trading has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has followed suit returning a meaningful 89% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing: We've identified 3 warning signs with Jewett-Cameron Trading (at least 1 which is significant) , and understanding these would certainly be useful.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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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