A Camet
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If we want to find a potential multi-bagger, there are often underlying trends that can provide clues. Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. However, after investigating Superior Group of Companies (NASDAQ:SGC), we don’t think current trends fit the mold of a multi-bagger.
Return on capital employed (ROCE): what is it?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. Analysts use this formula to calculate it for Superior Group of Companies:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.092 = $35 million ÷ ($485 million – $106 million) (Based on the last twelve months to March 2022).
Thereby, Superior Group of Companies has an ROI of 9.2%. Ultimately, it’s a poor performer and it underperforms the luxury industry average by 15%.
Check out our latest analysis for Superior Group of Companies
In the chart above, we’ve measured Superior Group of Companies’ past ROI against its past performance, but the future is arguably more important. If you want to see what analysts are predicting for the future, you should check out our free report for Superior Group of Companies.
What the ROCE trend can tell us
When we looked at the ROCE trend at Superior Group of Companies, we didn’t gain much confidence. About five years ago, the return on capital was 13%, but since then it has fallen to 9.2%. However, it appears that Superior Group of Companies could reinvest for long-term growth, as although capital employed has increased, the company’s sales have not changed significantly over the past 12 months. It may take some time before the company begins to see a change in the income from these investments.
In conclusion…
In summary, Superior Group of Companies is reinvesting funds back into the business for growth, but unfortunately, it appears sales haven’t grown much yet. Also, the total shareholder return over the past five years has been stable, which is not too surprising. Therefore, based on the analysis performed in this article, we do not believe that Superior Group of Companies has what it takes to be a multi-bagger.
One more thing: we have identified 5 warning signs with Superior Group of Companies (at least 1, which is a bit of a concern), and understanding them would definitely help.
Although Superior Group of Companies does not currently earn the highest returns, we have compiled a list of companies that currently earn more than 25% return on equity. look at this free list here.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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