We Like These Underlying Return On Capital Trends At SiteOne Landscape Supply (NYSE:SITE)

By
Simply Wall St
Published
July 25, 2021
NYSE:SITE
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. 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 looked at SiteOne Landscape Supply (NYSE:SITE) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on SiteOne Landscape Supply is:

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

0.15 = US$213m ÷ (US$1.9b - US$502m) (Based on the trailing twelve months to April 2021).

So, SiteOne Landscape Supply has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Trade Distributors industry.

See our latest analysis for SiteOne Landscape Supply

roce
NYSE:SITE Return on Capital Employed July 25th 2021

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 to see what analysts are forecasting going forward, you should check out our free report for SiteOne Landscape Supply.

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

SiteOne Landscape Supply is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 15%. The amount of capital employed has increased too, by 157%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From 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. Since the stock has returned a staggering 358% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 2 warning signs for SiteOne Landscape Supply that we think you should be aware of.

While SiteOne Landscape Supply may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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