There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Andersons (NASDAQ:ANDE) looks quite promising in regards to its trends of return on capital.
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. The formula for this calculation on Andersons is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.092 = US$202m ÷ (US$3.6b - US$1.4b) (Based on the trailing twelve months to September 2023).
So, Andersons has an ROCE of 9.2%. On its own, that's a low figure but it's around the 9.7% average generated by the Consumer Retailing industry.
See our latest analysis for Andersons
In the above chart we have measured Andersons' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Andersons here for free.
What The Trend Of ROCE Can Tell Us
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 9.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 49% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line
All in all, it's terrific to see that Andersons is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 77% return over the last five years. In light of that, we think it's worth looking further into this stock because if Andersons can keep these trends up, it could have a bright future ahead.
One more thing to note, we've identified 3 warning signs with Andersons and understanding these should be part of your investment process.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
