There Are Reasons To Feel Uneasy About JELD-WEN Holding's (NYSE:JELD) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. 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 JELD-WEN Holding (NYSE:JELD), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for JELD-WEN Holding, this is the formula:

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

0.067 = US$195m ÷ (US$3.8b - US$893m) (Based on the trailing twelve months to June 2022).

Therefore, JELD-WEN Holding has an ROCE of 6.7%. Ultimately, that's a low return and it under-performs the Building industry average of 14%.

Check out our latest analysis for JELD-WEN Holding

Above you can see how the current ROCE for JELD-WEN Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for JELD-WEN Holding.

What Can We Tell From JELD-WEN Holding's ROCE Trend?

When we looked at the ROCE trend at JELD-WEN Holding, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 6.7% from 10% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From JELD-WEN Holding's ROCE

In summary, JELD-WEN Holding is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 74% over the last five years. 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.

JELD-WEN Holding does have some risks though, and we've spotted 1 warning sign for JELD-WEN Holding that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.