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. Having said that, from a first glance at John B. Sanfilippo & Son (NASDAQ:JBSS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding 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 John B. Sanfilippo & Son is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$67m ÷ (US$545m - US$150m) (Based on the trailing twelve months to December 2024).
So, John B. Sanfilippo & Son has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 10% it's much better.
View our latest analysis for John B. Sanfilippo & Son
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how John B. Sanfilippo & Son has performed in the past in other metrics, you can view this free graph of John B. Sanfilippo & Son's past earnings, revenue and cash flow.
What Does the ROCE Trend For John B. Sanfilippo & Son Tell Us?
In terms of John B. Sanfilippo & Son's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 26% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
What We Can Learn From John B. Sanfilippo & Son's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that John B. Sanfilippo & Son is reinvesting for growth and has higher sales as a result. These trends are starting to be recognized by investors since the stock has delivered a 20% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.
Like most companies, John B. Sanfilippo & Son does come with some risks, and we've found 2 warning signs that you should be aware of.
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.
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.