If you are looking for a multibagger, there are a few things to look out for. Typically, we will want to see a trend towards an increasing return on capital employed (ROCE) and with it a growing capital employed base. This shows us that it is a compounding machine, capable of continuously reinvesting its profits back into the company and generating greater returns. In this sense: Beacon Roofing Supply (NASDAQ:BECN) is looking quite promising in terms of its return on investment trends.
Return on Capital Employed (ROCE): What is it?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its rate of return) relative to the capital employed in the company. The formula for this calculation for Beacon Roofing Supply is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.15 = $689M ÷ ($5.9B – $1.3B) (Based on trailing twelve months ended March 2023).
Therefore, Beacon Roofing Supply has a 15% ROCE. That’s a relatively normal return on investment, around 14%, that the trade distribution industry generates.
Check out our latest analysis for Beacon Roofing Supply
NasdaqGS:BECN Return on Capital Employed July 15, 2023
Above you can see how Beacon Roofing Supply’s current ROCE compares to historical returns on investments, but historical evidence is limited. If you want to see what analysts are predicting for the future, be sure to check out ours free Report for Beacon Roofing Supply.
How are returns developing?
Beacon Roofing Supply has not disappointed with its ROCE growth. More specifically, while the company has kept capital employed relatively constant over the past five years, ROCE has grown 271% over the same period. So we’re assuming the company has increased its efficiencies to deliver these higher returns without the need for additional investments. Things are looking good in that regard, so it’s worth checking out what management has to say about future growth plans.
The key to take away
In summary, Beacon Roofing Supply is generating higher returns with the same amount of capital, and that’s impressive. And with a respectable 95% being awarded to those who’ve held the stock over the past five years, one could argue that these developments are starting to get the attention they deserve. Nonetheless, we still think the company warrants further due diligence given its promising fundamentals.
Like most businesses, Beacon Roofing Supply comes with some risks and we’ve realized that 2 warning signs what you should be aware of.
Even if Beacon Roofing Supply doesn’t have the highest ROI, check this out free List of companies that generate high returns on equity with solid balance sheets.
What are the risks and opportunities for Beacon Roofing Supply?
Beacon Roofing Supply, Inc., together with its subsidiaries, is engaged in the distribution of residential and non-residential roofing materials and ancillary building products to contractors, home builders, builders, lumber yards and retailers throughout the United States and Canada.show more
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Reward
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Trading is 3.4% below our estimate of its fair value
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Earnings growth is forecast at 9.21% per year
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Earnings up 27.4% over the past year
risks
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Significant insider sales over the past 3 months
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Has a lot of debt
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This Simply Wall St article is of a general nature. We provide commentary based on historical data and analyst forecasts solely using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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