Stock Analysis

Slowing Rates Of Return At SiteOne Landscape Supply (NYSE:SITE) Leave Little Room For Excitement

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NYSE:SITE
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over SiteOne Landscape Supply's (NYSE:SITE) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for SiteOne Landscape Supply, this is the formula:

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

0.11 = US$251m ÷ (US$3.0b - US$655m) (Based on the trailing twelve months to October 2023).

So, SiteOne Landscape Supply has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Trade Distributors industry average of 13%.

Check out our latest analysis for SiteOne Landscape Supply

roce
NYSE:SITE Return on Capital Employed January 20th 2024

In the above chart we have measured SiteOne Landscape Supply's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering SiteOne Landscape Supply here for free.

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has employed 156% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On SiteOne Landscape Supply's ROCE

The main thing to remember is that SiteOne Landscape Supply has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 185% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, SiteOne Landscape Supply does come with some risks, and we've found 1 warning sign that you should be aware of.

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.

Valuation is complex, but we're helping make it simple.

Find out whether SiteOne Landscape Supply is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.