WEBULL

Stepan (NYSE:SCL) May Have Issues Allocating Its Capital

Simply Wall St · 4d ago

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Stepan (NYSE:SCL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

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 Stepan:

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

0.044 = US$76m ÷ (US$2.4b - US$714m) (Based on the trailing twelve months to September 2025).

Therefore, Stepan has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 9.3%.

See our latest analysis for Stepan

roce
NYSE:SCL Return on Capital Employed January 8th 2026

In the above chart we have measured Stepan's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Stepan .

How Are Returns Trending?

We weren't thrilled with the trend because Stepan's ROCE has reduced by 61% over the last five years, while the business employed 37% more capital. That being said, Stepan raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Stepan's earnings and if they change as a result from the capital raise. Also, we found that by looking at the company's latest EBIT, the figure is within 10% of the previous year's EBIT so you can basically assign the ROCE drop primarily to that capital raise.

Our Take On Stepan's ROCE

In summary, Stepan is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 56% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Like most companies, Stepan does come with some risks, and we've found 2 warning signs that you should be aware of.

While Stepan 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.