Fresh Del Monte Produce's (NYSE:FDP) Returns Have Hit A Wall

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Fresh Del Monte Produce (NYSE:FDP), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Fresh Del Monte Produce is:

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

0.054 = US$153m ÷ (US$3.5b - US$607m) (Based on the trailing twelve months to December 2022).

So, Fresh Del Monte Produce has an ROCE of 5.4%. Ultimately, that's a low return and it under-performs the Food industry average of 10%.

Check out our latest analysis for Fresh Del Monte Produce

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fresh Del Monte Produce's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Fresh Del Monte Produce, check out these free graphs here.

The Trend Of ROCE

Over the past five years, Fresh Del Monte Produce's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Fresh Del Monte Produce in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From Fresh Del Monte Produce's ROCE

In a nutshell, Fresh Del Monte Produce has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 28% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing, we've spotted 1 warning sign facing Fresh Del Monte Produce that you might find interesting.

While Fresh Del Monte Produce 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.

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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.