The Return Trends At Constellation Brands (NYSE:STZ) Look Promising

What are the early trends we should look for to identify a stock that could 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. With that in mind, we've noticed some promising trends at Constellation Brands (NYSE:STZ) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Constellation Brands is:

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

0.18 = US$3.5b ÷ (US$23b - US$3.3b) (Based on the trailing twelve months to November 2024).

Thus, Constellation Brands has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 17% generated by the Beverage industry.

See our latest analysis for Constellation Brands

Above you can see how the current ROCE for Constellation Brands 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 Constellation Brands .

What The Trend Of ROCE Can Tell Us

Constellation Brands has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 63%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Constellation Brands appears to been achieving more with less, since the business is using 21% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Key Takeaway

In the end, Constellation Brands has proven it's capital allocation skills are good with those higher returns from less amount of capital. And with a respectable 56% 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 Constellation Brands can keep these trends up, it could have a bright future ahead.

Constellation Brands does have some risks though, and we've spotted 4 warning signs for Constellation Brands that you might be interested in.

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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.