Why We Like The Returns At John B. Sanfilippo & Son (NASDAQ:JBSS)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of John B. Sanfilippo & Son (NASDAQ:JBSS) we really liked what we saw.

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. To calculate this metric for John B. Sanfilippo & Son, this is the formula:

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

0.25 = US$81m ÷ (US$447m - US$123m) (Based on the trailing twelve months to June 2022).

Therefore, John B. Sanfilippo & Son has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Food industry average of 10.0%.

View our latest analysis for John B. Sanfilippo & Son

Historical performance is a great place to start when researching a stock so above you can see the gauge for John B. Sanfilippo & Son's ROCE against it's prior returns. If you're interested in investigating John B. Sanfilippo & Son's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is John B. Sanfilippo & Son's ROCE Trending?

John B. Sanfilippo & Son has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 26% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From John B. Sanfilippo & Son's ROCE

To bring it all together, John B. Sanfilippo & Son has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 65% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 2 warning signs for John B. Sanfilippo & Son (1 can't be ignored) you should be aware of.

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.

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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.