Oil-Dri Corporation of America (NYSE:ODC) Has More To Do To Multiply In Value Going Forward
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. In light of that, when we looked at Oil-Dri Corporation of America (NYSE:ODC) and its ROCE trend, we weren't exactly thrilled.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Oil-Dri Corporation of America is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.088 = US$18m ÷ (US$249m - US$45m) (Based on the trailing twelve months to October 2022).
Thus, Oil-Dri Corporation of America has an ROCE of 8.8%. In absolute terms, that's a low return and it also under-performs the Household Products industry average of 13%.
See our latest analysis for Oil-Dri Corporation of America
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're interested in investigating Oil-Dri Corporation of America's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Oil-Dri Corporation of America Tell Us?
There hasn't been much to report for Oil-Dri Corporation of America's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Oil-Dri Corporation of America doesn't end up being a multi-bagger in a few years time.
Our Take On Oil-Dri Corporation of America's ROCE
In summary, Oil-Dri Corporation of America isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly, the stock has only gained 20% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
Oil-Dri Corporation of America does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...
While Oil-Dri Corporation of America may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
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