Yahoo Finance We Think Tsogo Sun (JSE:TSG) Might Have The DNA Of A Multi-Bagger
If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Tsogo Sun (JSE:TSG) looks great, so lets see what the trend can tell us.
What Is 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. The formula for this calculation on Tsogo Sun is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = R3.1b ÷ (R16b - R1.5b) (Based on the trailing twelve months to September 2023).
Thus, Tsogo Sun has an ROCE of 21%. On its own that's a fantastic return on capital, though it's the same as the Hospitality industry average of 21%.
See our latest analysis for Tsogo Sun
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'd like to look at how Tsogo Sun has performed in the past in other metrics, you can view this free graph of Tsogo Sun's past earnings, revenue and cash flow.
The Trend Of ROCE
You'd find it hard not to be impressed with the ROCE trend at Tsogo Sun. The figures show that over the last five years, returns on capital have grown by 120%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 48% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Tsogo Sun may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
The Bottom Line On Tsogo Sun's ROCE
In a nutshell, we're pleased to see that Tsogo Sun has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 30% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
Tsogo Sun does have some risks though, and we've spotted 2 warning signs for Tsogo Sun that you might be interested in.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.
