Stock Analysis
The Trend Of High Returns At Jabil (NYSE:JBL) Has Us Very Interested
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Jabil's (NYSE:JBL) look very promising so lets take a look.
What Is 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. Analysts use this formula to calculate it for Jabil:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = US$1.5b ÷ (US$20b - US$13b) (Based on the trailing twelve months to February 2023).
Thus, Jabil has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Electronic industry average of 13%.
Check out our latest analysis for Jabil
Above you can see how the current ROCE for Jabil 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 Jabil.
How Are Returns Trending?
We like the trends that we're seeing from Jabil. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. Basically the business is earning more per dollar of capital invested and in addition to that, 33% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
On a separate but related note, it's important to know that Jabil has a current liabilities to total assets ratio of 68%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
The Key Takeaway
To sum it up, Jabil has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 188% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you want to continue researching Jabil, you might be interested to know about the 2 warning signs that our analysis has discovered.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
What are the risks and opportunities for Jabil?
Rewards
Trading at 21.9% below our estimate of its fair value
Earnings are forecast to grow 7.93% per year
Earnings have grown 46.7% per year over the past 5 years
Risks
Significant insider selling over the past 3 months
Has a high level of debt
Further research on
Jabil
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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:JBL
Jabil
Jabil Inc. provides manufacturing services and solutions worldwide.
Undervalued with adequate balance sheet.
