Our Take On The Returns On Capital At Jewett-Cameron Trading (NASDAQ:JCTC.F)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Jewett-Cameron Trading (NASDAQ:JCTC.F), it didn't seem to tick all of these boxes.

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

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

0.20 = US$3.9m ÷ (US$23m - US$3.5m) (Based on the trailing twelve months to August 2020).

Thus, Jewett-Cameron Trading has an ROCE of 20%. In absolute terms, that's a satisfactory return, but compared to the Building industry average of 15% it's much better.

See 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're interested in investigating Jewett-Cameron Trading's past further, check out this free graph of past earnings, revenue and cash flow.

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

There hasn't been much to report for Jewett-Cameron Trading's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Jewett-Cameron Trading to be a multi-bagger going forward.

The Bottom Line

In a nutshell, Jewett-Cameron Trading has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 77% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Jewett-Cameron Trading does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

While Jewett-Cameron Trading 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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