Returns At Pilgrim's Pride (NASDAQ:PPC) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Pilgrim's Pride's (NASDAQ:PPC) returns on capital, so let's have a look.

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. The formula for this calculation on Pilgrim's Pride is:

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

0.18 = US$1.5b ÷ (US$11b - US$2.6b) (Based on the trailing twelve months to September 2024).

Thus, Pilgrim's Pride has an ROCE of 18%. 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

Above you can see how the current ROCE for Pilgrim's Pride 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 analyst report for Pilgrim's Pride .

What Does the ROCE Trend For Pilgrim's Pride Tell Us?

Pilgrim's Pride is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 57% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

All in all, it's terrific to see that Pilgrim's Pride is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 54% return over the last five years. 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 1 warning sign 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.