There's Been No Shortage Of Growth Recently For Shyft Group's (NASDAQ:SHYF) Returns On Capital

Simply Wall St
·2 min read

What are the early trends we should look for to identify a stock that could 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. Speaking of which, we noticed some great changes in Shyft Group's (NASDAQ:SHYF) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Shyft Group, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.19 = US$51m ÷ (US$412m - US$141m) (Based on the trailing twelve months to March 2021).

So, Shyft Group has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Machinery industry.

Check out our latest analysis for Shyft Group

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Above you can see how the current ROCE for Shyft Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Shyft Group here for free.

The Trend Of ROCE

The fact that Shyft Group is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 19% on its capital. In addition to that, Shyft Group is employing 70% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On Shyft Group's ROCE

Long story short, we're delighted to see that Shyft Group's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 534% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Shyft Group, we've discovered 1 warning sign that you should be aware of.

While Shyft Group 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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