Investors Will Want Pilgrim's Pride's (NASDAQ:PPC) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. With that in mind, we've noticed some promising trends at Pilgrim's Pride (NASDAQ:PPC) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Pilgrim's Pride, this is the formula:

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

0.16 = US$1.2b ÷ (US$10b - US$2.5b) (Based on the trailing twelve months to June 2024).

Thus, Pilgrim's Pride has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 11% generated by the Food industry.

Check out our latest analysis for Pilgrim's Pride

In the above chart we have measured Pilgrim's Pride's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Pilgrim's Pride .

So How Is Pilgrim's Pride's ROCE Trending?

Investors would be pleased with what's happening at Pilgrim's Pride. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. The amount of capital employed has increased too, by 48%. So we're very much inspired by what we're seeing at Pilgrim's Pride thanks to its ability to profitably reinvest capital.

Our Take On Pilgrim's Pride's ROCE

In summary, it's great to see that Pilgrim's Pride can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 43% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Pilgrim's Pride can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Pilgrim's Pride that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.