We Like Jewett-Cameron Trading's (NASDAQ:JCTC.F) Returns And Here's How They're Trending

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Jewett-Cameron Trading (NASDAQ:JCTC.F) looks great, so lets see what the trend can tell us.

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. To calculate this metric for Jewett-Cameron Trading, this is the formula:

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

0.22 = US$4.5m ÷ (US$23m - US$3.3m) (Based on the trailing twelve months to November 2020).

Therefore, Jewett-Cameron Trading has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Building industry average of 14%.

View our latest analysis for Jewett-Cameron Trading

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jewett-Cameron Trading's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Jewett-Cameron Trading, check out these free graphs here.

So How Is Jewett-Cameron Trading's ROCE Trending?

Jewett-Cameron Trading is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 23% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Jewett-Cameron Trading's ROCE

In summary, we're delighted to see that Jewett-Cameron Trading has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 92% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Jewett-Cameron Trading, we've spotted 2 warning signs, and 1 of them can't be ignored.

Jewett-Cameron Trading is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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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