On revient sur l’éditorial : Super Retail Group’s (ASX:SUL) Returns Have Hit A Wall

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Super Retail Group (ASX:SUL) looks decent, right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Super Retail Group is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.18 = AU$422m ÷ (AU$3.4b – AU$1.1b) (Based on the trailing twelve months to December 2023).

Thus, Super Retail Group has an ROCE of 18%. That’s a pretty standard return and it’s in line with the industry average of 18%.

See our latest analysis for Super Retail Group

In the above chart we have measured Super Retail Group’s prior ROCE against its prior performance, but the future is arguably more important. If you’re interested, you can view the analysts predictions in our free analyst report for Super Retail Group .

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn’t stand out much, but returns on a whole are decent. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 85% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Super Retail Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

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The Bottom Line On Super Retail Group’s ROCE

In the end, Super Retail Group has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 190% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more « expensive » than it was before, we think the strong fundamentals warrant this stock for further research.

On a separate note, we’ve found 1 warning sign for Super Retail Group you’ll probably want to know about.

While Super Retail 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.