Stock Analysis

These Return Metrics Don't Make Stericycle (NASDAQ:SRCL) Look Too Strong

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What underlying fundamental trends can indicate that a company might be in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. In light of that, from a first glance at Stericycle (NASDAQ:SRCL), we've spotted some signs that it could be struggling, so let's investigate.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Stericycle is:

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

0.042 = US$199m ÷ (US$5.3b - US$622m) (Based on the trailing twelve months to December 2022).

Thus, Stericycle has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 9.8%.

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NasdaqGS:SRCL Return on Capital Employed March 14th 2023

Above you can see how the current ROCE for Stericycle 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 Stericycle.

What The Trend Of ROCE Can Tell Us

In terms of Stericycle's historical ROCE trend, it isn't fantastic. Unfortunately, returns have declined substantially over the last five years to the 4.2% we see today. In addition to that, Stericycle is now employing 22% less capital than it was five years ago. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

The Bottom Line On Stericycle's ROCE

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Long term shareholders who've owned the stock over the last five years have experienced a 32% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a final note, we found 2 warning signs for Stericycle (1 is a bit unpleasant) you should be aware of.

While Stericycle 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.

What are the risks and opportunities for Stericycle?

Stericycle, Inc., together with its subsidiaries, provides regulated and compliance solutions in the United States, Europe, and internationally.

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  • Trading at 40.1% below our estimate of its fair value

  • Earnings are forecast to grow 32.02% per year

  • Became profitable this year


  • Interest payments are not well covered by earnings

  • Large one-off items impacting financial results

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