What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Utz Brands (NYSE:UTZ) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is 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. Analysts use this formula to calculate it for Utz Brands:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.012 = US$30m ÷ (US$2.8b - US$228m) (Based on the trailing twelve months to October 2023).
Therefore, Utz Brands has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Food industry average of 10%.
See our latest analysis for Utz Brands
In the above chart we have measured Utz Brands' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Utz Brands.
What Can We Tell From Utz Brands' ROCE Trend?
On the surface, the trend of ROCE at Utz Brands doesn't inspire confidence. Around four years ago the returns on capital were 8.8%, but since then they've fallen to 1.2%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
Our Take On Utz Brands' ROCE
In summary, Utz Brands is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Although the market must be expecting these trends to improve because the stock has gained 74% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
Utz Brands does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
About NYSE:UTZ
Utz Brands
Engages in manufacture, marketing, and distribution of snack foods.
Undervalued with moderate growth potential.
