Is Caxton and CTP Publishers and Printers (JSE:CAT) Shrinking?

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after glancing at the trends within Caxton and CTP Publishers and Printers (JSE:CAT), we weren't too hopeful.

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. To calculate this metric for Caxton and CTP Publishers and Printers, this is the formula:

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

0.052 = SAR311m ÷ (SAR7.2b - SAR1.3b) (Based on the trailing twelve months to December 2019).

Therefore, Caxton and CTP Publishers and Printers has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Media industry average of 9.5%.

View our latest analysis for Caxton and CTP Publishers and Printers

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Caxton and CTP Publishers and Printers has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Caxton and CTP Publishers and Printers' ROCE Trend?

We are a bit worried about the trend of returns on capital at Caxton and CTP Publishers and Printers. To be more specific, the ROCE was 8.1% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Caxton and CTP Publishers and Printers becoming one if things continue as they have.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. We expect this has contributed to the stock plummeting 71% during the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we found 3 warning signs for Caxton and CTP Publishers and Printers (1 is potentially serious) you should be aware of.

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