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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think John Wiley & Sons (NYSE:WLY) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for John Wiley & Sons:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.078 = US$194m ÷ (US$3.1b - US$635m) (Based on the trailing twelve months to October 2022).
So, John Wiley & Sons has an ROCE of 7.8%. In absolute terms, that's a low return but it's around the Media industry average of 9.3%.
Check out our latest analysis for John Wiley & Sons
Above you can see how the current ROCE for John Wiley & Sons 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 John Wiley & Sons.
What The Trend Of ROCE Can Tell Us
In terms of John Wiley & Sons' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 12%, but since then they've fallen to 7.8%. 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
What We Can Learn From John Wiley & Sons' ROCE
Bringing it all together, while we're somewhat encouraged by John Wiley & Sons' reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 23% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think John Wiley & Sons has the makings of a multi-bagger.
One more thing to note, we've identified 3 warning signs with John Wiley & Sons and understanding them should be part of your investment process.
While John Wiley & Sons isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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:WLY
Average dividend payer with limited growth.
