Stock Analysis

O-I Glass (NYSE:OI) Hasn't Managed To Accelerate Its Returns

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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at O-I Glass (NYSE:OI), it didn't seem to tick all of these boxes.

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 O-I Glass is:

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

0.084 = US$593m ÷ (US$8.8b - US$1.7b) (Based on the trailing twelve months to September 2021).

Thus, O-I Glass has an ROCE of 8.4%. In absolute terms, that's a low return but it's around the Packaging industry average of 10%.

See our latest analysis for O-I Glass

NYSE:OI Return on Capital Employed January 19th 2022

Above you can see how the current ROCE for O-I Glass compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for O-I Glass.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at O-I Glass, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at O-I Glass 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 O-I Glass' ROCE

In summary, O-I Glass isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 27% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

O-I Glass does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.

While O-I Glass 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.

Valuation is complex, but we're helping make it simple.

Find out whether O-I Glass is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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