Yahoo Finance Has Lindsay Australia (ASX:LAU) Got What It Takes To Become A Multi-Bagger?
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Lindsay Australia (ASX:LAU), we don't think it's current trends fit the mold of a multi-bagger.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Lindsay Australia is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.051 = AU$14m ÷ (AU$362m - AU$92m) (Based on the trailing twelve months to June 2020).
Thus, Lindsay Australia has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 7.0%.
See our latest analysis for Lindsay Australia
Above you can see how the current ROCE for Lindsay Australia compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Lindsay Australia.
What Can We Tell From Lindsay Australia's ROCE Trend?
In terms of Lindsay Australia's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 8.6% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
The Bottom Line
In summary, Lindsay Australia is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
If you'd like to know about the risks facing Lindsay Australia, we've discovered 4 warning signs that you should be aware of.
While Lindsay Australia 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.
This article by Simply Wall St is general in nature. 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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