Slowing Rates Of Return At O-I Glass (NYSE:OI) Leave Little Room For Excitement

Published
July 22, 2022
NYSE:OI
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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? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at O-I Glass (NYSE:OI) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. The formula for this calculation on O-I Glass is:

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

0.094 = US$667m รท (US$8.9b - US$1.8b) (Based on the trailing twelve months to March 2022).

So, O-I Glass has an ROCE of 9.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.4%.

Check out our latest analysis for O-I Glass

roce
NYSE:OI Return on Capital Employed July 22nd 2022

In the above chart we have measured O-I Glass' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From O-I Glass' ROCE Trend?

Over the past five years, O-I Glass' ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if O-I Glass doesn't end up being a multi-bagger in a few years time.

Our Take On O-I Glass' ROCE

In a nutshell, O-I Glass has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 44% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

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

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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