Yahoo Finance Returns At Stantec (TSE:STN) Are On The Way Up
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Stantec (TSE:STN) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Stantec, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.097 = CA$421m ÷ (CA$5.6b - CA$1.3b) (Based on the trailing twelve months to March 2023).
So, Stantec has an ROCE of 9.7%. In absolute terms, that's a low return but it's around the Construction industry average of 9.2%.
See our latest analysis for Stantec
Above you can see how the current ROCE for Stantec compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Stantec here for free.
The Trend Of ROCE
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.7%. The amount of capital employed has increased too, by 47%. So we're very much inspired by what we're seeing at Stantec thanks to its ability to profitably reinvest capital.
What We Can Learn From Stantec's ROCE
To sum it up, Stantec has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 159% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you want to continue researching Stantec, you might be interested to know about the 2 warning signs that our analysis has discovered.
While Stantec may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.
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