TravelCenters of America (NASDAQ:TA) Has Some Way To Go To Become A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 TravelCenters of America (NASDAQ:TA) 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. To calculate this metric for TravelCenters of America, this is the formula:

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

0.023 = US$69m ÷ (US$3.5b - US$504m) (Based on the trailing twelve months to March 2021).

Therefore, TravelCenters of America has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 15%.

View our latest analysis for TravelCenters of America

Above you can see how the current ROCE for TravelCenters of America compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering TravelCenters of America here for free.

The Trend Of ROCE

In terms of TravelCenters of America's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 2.3% for the last five years, and the capital employed within the business has risen 129% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

As we've seen above, TravelCenters of America's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 26% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think TravelCenters of America has the makings of a multi-bagger.

TravelCenters of America does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

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.

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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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