Be wary of Taiheiyo Cement and its returns on Capital
As of December 2023, Taiheiyo Cement's ROCE stands at 4.5%, which is considered low in absolute terms and also falls short of the Basic Materials industry average of 8.8%.
This figure represents a decline from a higher rate of 9.6% over the last five years, signaling a downward trend in the company's capital efficiency.
Despite this, both the company's capital employed and revenue have seen growth, suggesting that Taiheiyo Cement is investing in expansion at the expense of short-term returns. This strategic focus on growth could potentially enhance long-term shareholder value if these investments yield successful outcomes.
The analysis concludes that, although Taiheiyo Cement's current ROCE does not paint the most favorable picture, its reinvestment strategies aimed at growth have led to increased sales. However, the stock has seen a modest increase of 3.5% over the last five years. This performance, coupled with the company's financial metrics, suggests that Taiheiyo Cement may still present an appealing investment opportunity if its other fundamentals are strong. Yet, the article also cautions investors, pointing out significant risks highlighted by three warning signs, two of which are particularly concerning.
