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To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Having said that, from a first glance at Nutrien (TSE:NTR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is 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. Analysts use this formula to calculate it for Nutrien:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.064 = US$2.6b ÷ (US$52b - US$11b) (Based on the trailing twelve months to September 2024).
So, Nutrien has an ROCE of 6.4%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.2%.
Check out our latest analysis for Nutrien
Above you can see how the current ROCE for Nutrien 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 analyst report for Nutrien .
The Trend Of ROCE
Things have been pretty stable at Nutrien, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Nutrien in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That probably explains why Nutrien has been paying out 74% of its earnings as dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.
What We Can Learn From Nutrien's ROCE
We can conclude that in regards to Nutrien's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 29% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.