Here's What To Make Of PPC's (JSE:PPC) Decelerating Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at PPC (JSE:PPC) and its ROCE trend, we weren't exactly thrilled.

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 PPC:

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

0.12 = R1.1b ÷ (R16b - R6.2b) (Based on the trailing twelve months to March 2021).

So, PPC has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Basic Materials industry average it falls behind.

Check out our latest analysis for PPC

Historical performance is a great place to start when researching a stock so above you can see the gauge for PPC's ROCE against it's prior returns. If you'd like to look at how PPC has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is PPC's ROCE Trending?

There hasn't been much to report for PPC's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if PPC doesn't end up being a multi-bagger in a few years time.

The Bottom Line On PPC's ROCE

In a nutshell, PPC has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 24% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

PPC does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should know about.

While PPC 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.
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