Slowing Rates Of Return At Super Retail Group (ASX:SUL) Leave Little Room For Excitement

If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends to watch out for. Typically, we will want to note a growth trend return on capital employed (ROCE) and along with that, an expansion base of capital employed. Ultimately, this shows that it is a business that reinvests profits at increasing rates of return. That is why when we look briefly Super Retail Group (ASX:SUL) ROCE trend, we were very happy with what we saw.

Return on Capital Employed (ROCE): What is it?

For those who aren’t sure what ROCE is, it measures the amount of pre-tax profit a business can generate from the capital employed in its business. To calculate this metric for Super Retail Group, this is the formula:

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

0.18 = AU$393 million ÷ (AU$2.9 trillion – AU$763 million) (Based on the last twelve months to July 2022).

So, Super Retail Group has a ROCE of 18%. That’s a relatively normal return on capital, and it’s about 19% generated by the specialty retail industry.

See our latest analysis for Super Retail Group

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Above you can see how Super Retail Group’s current ROCE compares to its past returns on equity, but there’s not much I can say about the past. If you want to see what analysts are forecasting going forward, you should check out our free report for Super Retail Group.

What the ROCE trend can tell us

The ROCE trend doesn’t stand out much, but the overall returns are decent. Over the last five years, ROCE has been relatively stable at around 18% and the company has deployed 75% more capital in its operations. 18% is a pretty standard return, and it brings some comfort knowing that Super Retail Group has consistently earned this amount. Steady returns at this stage can be unexciting, but if they can be sustained over the long term, they often provide good shareholder rewards.

The key takeaway

The most important thing to remember is that Super Retail Group has proven its ability to continually reinvest at respectable rates of return. And given that stocks have risen strongly in the last five years, it seems that the market could expect this trend to continue. So while investors seem to be recognizing these promising trends, we still think the stock deserves further investigation.

However, Super Retail Group carries some risks, we found 2 warning signs in our investment analysis, and 1 of them is significant…

For those who like to invest in solid companies, watch this free list of companies with strong balance sheets and high returns on capital.

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This Simply Wall St article is of a general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell any stock, and it does not take into account your goals or financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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