Stock Analysis

Ryerson Holding (NYSE:RYI) Shareholders Will Want The ROCE Trajectory To Continue

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NYSE:RYI
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There are a few key trends to look for if we want to identify the next multi-bagger. 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. With that in mind, we've noticed some promising trends at Ryerson Holding (NYSE:RYI) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Ryerson Holding is:

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

0.19 = US$298m ÷ (US$2.4b - US$893m) (Based on the trailing twelve months to September 2021).

Thus, Ryerson Holding has an ROCE of 19%. That's a relatively normal return on capital, and it's around the 17% generated by the Metals and Mining industry.

Check out our latest analysis for Ryerson Holding

roce
NYSE:RYI Return on Capital Employed December 8th 2021

In the above chart we have measured Ryerson Holding's 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 Ryerson Holding.

How Are Returns Trending?

We like the trends that we're seeing from Ryerson Holding. The data shows that returns on capital have increased substantially over the last five years to 19%. The amount of capital employed has increased too, by 23%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 37% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line On Ryerson Holding's ROCE

To sum it up, Ryerson Holding has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 69% 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 Ryerson Holding can keep these trends up, it could have a bright future ahead.

Ryerson Holding does have some risks though, and we've spotted 3 warning signs for Ryerson Holding that you might be interested in.

While Ryerson Holding 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.

What are the risks and opportunities for Ryerson Holding?

Ryerson Holding Corporation, together with its subsidiaries, processes and distributes industrial metals in the United States, Canada, Mexico, and China.

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Rewards

  • Trading at 7% below our estimate of its fair value

  • Earnings grew by 204.6% over the past year

Risks

  • Has a high level of debt

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