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

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at SiteOne Landscape Supply (NYSE:SITE), 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 SiteOne Landscape Supply is:

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

0.093 = US$233m ÷ (US$3.2b - US$683m) (Based on the trailing twelve months to June 2024).

Therefore, SiteOne Landscape Supply has an ROCE of 9.3%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 12%.

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're interested, you can view the analysts predictions in our free analyst report for SiteOne Landscape Supply .

What Does the ROCE Trend For SiteOne Landscape Supply Tell Us?

There are better returns on capital out there than what we're seeing at SiteOne Landscape Supply. The company has consistently earned 9.3% for the last five years, and the capital employed within the business has risen 113% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

As we've seen above, SiteOne Landscape Supply's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 59% 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.

SiteOne Landscape Supply could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for SITE on our platform quite valuable.

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.