Returns At ACCO Brands (NYSE:ACCO) Appear To Be Weighed Down

August 10, 2022
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. In light of that, when we looked at ACCO Brands (NYSE:ACCO) and its ROCE trend, we weren't exactly thrilled.

What Is 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. To calculate this metric for ACCO Brands, this is the formula:

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

0.073 = US$182m ÷ (US$3.1b - US$591m) (Based on the trailing twelve months to June 2022).

Thus, ACCO Brands has an ROCE of 7.3%. On its own, that's a low figure but it's around the 8.9% average generated by the Commercial Services industry.

View our latest analysis for ACCO Brands

NYSE:ACCO Return on Capital Employed August 10th 2022

Above you can see how the current ROCE for ACCO Brands 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 report on analyst forecasts for the company.

What Can We Tell From ACCO Brands' ROCE Trend?

Over the past five years, ACCO Brands' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect ACCO Brands to be a multi-bagger going forward.

In Conclusion...

In a nutshell, ACCO Brands has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 31% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think ACCO Brands has the makings of a multi-bagger.

On a final note, we found 2 warning signs for ACCO Brands (1 shouldn't be ignored) you should be aware of.

While ACCO Brands 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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