If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Ergo, when we looked at the ROCE trends at YETI Holdings (NYSE:YETI), we liked what we saw.
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. To calculate this metric for YETI Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = US$236m ÷ (US$1.1b - US$299m) (Based on the trailing twelve months to March 2024).
So, YETI Holdings has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.
In the above chart we have measured YETI Holdings' 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 YETI Holdings .
How Are Returns Trending?
It's hard not to be impressed by YETI Holdings' returns on capital. The company has employed 154% more capital in the last five years, and the returns on that capital have remained stable at 29%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If YETI Holdings can keep this up, we'd be very optimistic about its future.
Our Take On YETI Holdings' ROCE
In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. In light of this, the stock has only gained 37% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.
While YETI Holdings looks impressive, no company is worth an infinite price. The intrinsic value infographic for YETI helps visualize whether it is currently trading for a fair price.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.
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