SiteOne Landscape Supply's (NYSE:SITE) Returns On Capital Are Heading Higher

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So on that note, SiteOne Landscape Supply (NYSE:SITE) looks quite promising in regards to its trends of return on capital.

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 SiteOne Landscape Supply is:

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

0.17 = US$332m ÷ (US$2.5b - US$560m) (Based on the trailing twelve months to January 2023).

Thus, SiteOne Landscape Supply has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 16% generated by the Trade Distributors industry.

See our latest analysis for SiteOne Landscape Supply

Above you can see how the current ROCE for SiteOne Landscape Supply compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering SiteOne Landscape Supply here for free.

What Can We Tell From SiteOne Landscape Supply's ROCE Trend?

Investors would be pleased with what's happening at SiteOne Landscape Supply. The data shows that returns on capital have increased substantially over the last five years to 17%. The amount of capital employed has increased too, by 180%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On SiteOne Landscape Supply's ROCE

To sum it up, SiteOne Landscape Supply has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 69% return over the last five years. In light of that, we think it's worth looking further into this stock because if SiteOne Landscape Supply can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

While SiteOne Landscape Supply isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.