Yahoo Finance Parkland (TSE:PKI) Has More To Do To Multiply In Value Going Forward
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Parkland (TSE:PKI) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Parkland:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.087 = CA$918m ÷ (CA$14b - CA$3.4b) (Based on the trailing twelve months to June 2024).
Therefore, Parkland has an ROCE of 8.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.1%.
View our latest analysis for Parkland
In the above chart we have measured Parkland's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Parkland .
How Are Returns Trending?
The returns on capital haven't changed much for Parkland in recent years. The company has employed 46% more capital in the last five years, and the returns on that capital have remained stable at 8.7%. 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.
The Key Takeaway
Long story short, while Parkland has been reinvesting its capital, the returns that it's generating haven't increased. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Parkland has the makings of a multi-bagger.
One more thing, we've spotted 1 warning sign facing Parkland that you might find interesting.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
