There Are Reasons To Feel Uneasy About Kelly Services’ (NASDAQ: KELY.A) Returns On Capital

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. This shows us that it’s a compounding machine, able to continuously reinvest its earnings back into the business and generate higher returns. However, after investigating Kelly Services (NASDAQ: KELY.A), we do not think it’s current trends fit the mold of a multi-bagger.

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

If you have not 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 Kelly Services is:

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

0.031 = US $ 55m ÷ (US $ 2.9b – US $ 1.1b) (Based on the trailing twelve months to January 2022).

Therefore, Kelly Services has an ROCE of 3.1%. Ultimately, that’s a low return and it under-performs the Professional Services industry average of 12%.

Check out our latest analysis for Kelly Services

roce

Above you can see how the current ROCE for Kelly Services compares to its prior returns on capital, but there is only so much you can tell from the past. If you’re interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

When we looked at the ROCE trend at Kelly Services, we did not gain much confidence. Around five years ago the returns on capital were 5.3%, but since then they’ve fallen to 3.1%. Meanwhile, the business is utilizing more capital but this has not moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It’s worth keeping an eye on the company’s earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion …

To conclude, we’ve found that Kelly Services is reinvesting in the business, but returns have been falling. Additionally, the stock’s total return to shareholders over the last five years has been flat, which isn’t too surprising. All in all, the inherent trends aren’t typical of multi-baggers, so if that’s what you’re after, we think you might have more luck elsewhere.

If you’d like to know more about Kelly Services, we’ve spotted 2 warning signs, and 1 of them is a bit unpleasant.

While Kelly Services is not earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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