Yahoo Finance Here's What To Make Of SEEK's (ASX:SEK) Decelerating Rates Of Return
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. 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. Although, when we looked at SEEK (ASX:SEK), it didn't seem to tick all of these boxes.
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 SEEK is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.089 = AU$332m ÷ (AU$4.7b - AU$1.0b) (Based on the trailing twelve months to December 2021).
So, SEEK has an ROCE of 8.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.0%.
Check out our latest analysis for SEEK
Above you can see how the current ROCE for SEEK 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 SEEK here for free.
What Does the ROCE Trend For SEEK Tell Us?
The returns on capital haven't changed much for SEEK in recent years. The company has employed 32% more capital in the last five years, and the returns on that capital have remained stable at 8.9%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
Our Take On SEEK's ROCE
In conclusion, SEEK has been investing more capital into the business, but returns on that capital haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 25% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
One more thing, we've spotted 2 warning signs facing SEEK that you might find interesting.
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.
