Investors Shouldn't Overlook Sibanye Stillwater's (JSE:SSW) Impressive Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at the ROCE trend of Sibanye Stillwater (JSE:SSW) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Sibanye Stillwater:

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

0.26 = R37b ÷ (R159b - R19b) (Based on the trailing twelve months to June 2022).

So, Sibanye Stillwater has an ROCE of 26%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

Our analysis indicates that SSW is potentially undervalued!

Above you can see how the current ROCE for Sibanye Stillwater 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 Sibanye Stillwater.

What The Trend Of ROCE Can Tell Us

Sibanye Stillwater is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 26%. The amount of capital employed has increased too, by 106%. So we're very much inspired by what we're seeing at Sibanye Stillwater thanks to its ability to profitably reinvest capital.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Sibanye Stillwater has. And a remarkable 185% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 2 warning signs with Sibanye Stillwater and understanding them should be part of your investment process.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.