Stock Analysis

Tupperware Brands (NYSE:TUP) Is Finding It Tricky To Allocate Its Capital

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When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. On that note, looking into Tupperware Brands (NYSE:TUP), we weren't too upbeat about how things were going.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Tupperware Brands:

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

0.20 = US$143m ÷ (US$1.1b - US$388m) (Based on the trailing twelve months to June 2022).

So, Tupperware Brands has an ROCE of 20%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

View our latest analysis for Tupperware Brands

NYSE:TUP Return on Capital Employed September 28th 2022

In the above chart we have measured Tupperware Brands' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Tupperware Brands here for free.

What The Trend Of ROCE Can Tell Us

The trend of ROCE at Tupperware Brands is showing some signs of weakness. Unfortunately, returns have declined substantially over the last five years to the 20% we see today. In addition to that, Tupperware Brands is now employing 33% less capital than it was five years ago. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. 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

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Unsurprisingly then, the stock has dived 87% over the last five years, so investors are recognizing these changes and don't like the company's prospects. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing, we've spotted 2 warning signs facing Tupperware Brands that you might find interesting.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

What are the risks and opportunities for Tupperware Brands?

Tupperware Brands Corporation operates as a consumer products company worldwide.

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  • Trading at 78% below our estimate of its fair value

  • Earnings are forecast to grow 9.57% per year


  • Debt is not well covered by operating cash flow

  • Highly volatile share price over the past 3 months

  • Profit margins (1.6%) are lower than last year (9.9%)

  • Large one-off items impacting financial results

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