Yahoo Finance Trellidor Holdings (JSE:TRL) Could Be At Risk Of Shrinking As A Company
Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. On that note, looking into Trellidor Holdings (JSE:TRL), we weren't too upbeat about how things were going.
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. Analysts use this formula to calculate it for Trellidor Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.07 = R22m ÷ (R431m - R115m) (Based on the trailing twelve months to December 2023).
Therefore, Trellidor Holdings has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Building industry average of 18%.
View our latest analysis for Trellidor Holdings
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 Trellidor Holdings' past further, check out this free graph covering Trellidor Holdings' past earnings, revenue and cash flow.
What Can We Tell From Trellidor Holdings' ROCE Trend?
In terms of Trellidor Holdings' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 28% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Trellidor Holdings becoming one if things continue as they have.
The Bottom Line
In summary, it's unfortunate that Trellidor Holdings is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 63% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.
On a separate note, we've found 4 warning signs for Trellidor Holdings you'll probably want to know about.
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.
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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.
