Yahoo Finance There Are Reasons To Feel Uneasy About Andrew Peller's (TSE:ADW.A) Returns On Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Andrew Peller (TSE:ADW.A), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Andrew Peller:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) Ă· (Total Assets - Current Liabilities)
0.032 = CA$16m Ă· (CA$562m - CA$58m) (Based on the trailing twelve months to December 2022).
So, Andrew Peller has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Beverage industry average of 14%.
View our latest analysis for Andrew Peller
Above you can see how the current ROCE for Andrew Peller compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
When we looked at the ROCE trend at Andrew Peller, we didn't gain much confidence. To be more specific, ROCE has fallen from 12% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line
Bringing it all together, while we're somewhat encouraged by Andrew Peller's reinvestment in its own business, we're aware that returns are shrinking. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 70% in the last five years. Therefore based on the analysis done in this article, we don't think Andrew Peller has the makings of a multi-bagger.
If you'd like to know about the risks facing Andrew Peller, we've discovered 3 warning signs that you should be aware of.
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. 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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