Returns On Capital At Superior Group of Companies (NASDAQ:SGC) Paint A Concerning Picture

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Superior Group of Companies (NASDAQ:SGC), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Superior Group of Companies:

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

0.055 = US$21m ÷ (US$467m - US$91m) (Based on the trailing twelve months to September 2022).

So, Superior Group of Companies has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 18%.

View our latest analysis for Superior Group of Companies

Above you can see how the current ROCE for Superior Group of Companies 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 Does the ROCE Trend For Superior Group of Companies Tell Us?

On the surface, the trend of ROCE at Superior Group of Companies doesn't inspire confidence. Over the last five years, returns on capital have decreased to 5.5% from 14% five years ago. However it looks like Superior Group of Companies might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that Superior Group of Companies is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 50% 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 Superior Group of Companies has the makings of a multi-bagger.

One more thing: We've identified 3 warning signs with Superior Group of Companies (at least 2 which are concerning) , and understanding them would certainly be useful.

While Superior Group of Companies 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.