Yahoo Finance Returns At AJ Lucas Group (ASX:AJL) Are On The Way Up
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at AJ Lucas Group (ASX:AJL) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on AJ Lucas Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.085 = AU$15m ÷ (AU$232m - AU$59m) (Based on the trailing twelve months to June 2021).
Therefore, AJ Lucas Group has an ROCE of 8.5%. Ultimately, that's a low return and it under-performs the Construction industry average of 12%.
View our latest analysis for AJ Lucas Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for AJ Lucas Group's ROCE against it's prior returns. If you'd like to look at how AJ Lucas Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
AJ Lucas Group's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 10,106% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line On AJ Lucas Group's ROCE
To bring it all together, AJ Lucas Group has done well to increase the returns it's generating from its capital employed. And since the stock has dived 90% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.
AJ Lucas Group does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...
While AJ Lucas Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
