Investors Met With Slowing Returns on Capital At Superior Group of Companies (NASDAQ:SGC)
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Superior Group of Companies (NASDAQ:SGC) and its ROCE trend, we weren't exactly thrilled.
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For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Superior Group of Companies, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.067 = US$21m ÷ (US$415m - US$102m) (Based on the trailing twelve months to December 2024).
Therefore, Superior Group of Companies has an ROCE of 6.7%. Ultimately, that's a low return and it under-performs the Luxury industry average of 13%.
See our latest analysis for Superior Group of Companies
Above you can see how the current ROCE for Superior Group of Companies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Superior Group of Companies .
Things have been pretty stable at Superior Group of Companies, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Superior Group of Companies in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
In summary, Superior Group of Companies isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 72% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.
If you'd like to know about the risks facing Superior Group of Companies, we've discovered 1 warning sign that you should be aware of.
While Superior Group of Companies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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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