Has Seaboard (NYSEMKT:SEB) Got What It Takes To Become A Multi-Bagger?

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Seaboard (NYSEMKT:SEB), it didn't seem to tick all of these boxes.

What is 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. Analysts use this formula to calculate it for Seaboard:

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

0.037 = US$185m ÷ (US$6.0b - US$1.0b) (Based on the trailing twelve months to September 2020).

Thus, Seaboard has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.9%.

Check out our latest analysis for Seaboard

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Seaboard has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Seaboard's ROCE Trending?

When we looked at the ROCE trend at Seaboard, we didn't gain much confidence. Around five years ago the returns on capital were 7.0%, but since then they've fallen to 3.7%. However it looks like Seaboard might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Seaboard's ROCE

To conclude, we've found that Seaboard is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 21% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a final note, we've found 1 warning sign for Seaboard that we think you should be aware of.

While Seaboard 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. 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.
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