If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Having said that, from a first glance at 1-800-FLOWERS.COM (NASDAQ:FLWS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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. The formula for this calculation on 1-800-FLOWERS.COM is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0066 = US$5.1m ÷ (US$1.0b - US$267m) (Based on the trailing twelve months to September 2024).
Therefore, 1-800-FLOWERS.COM has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 13%.
In the above chart we have measured 1-800-FLOWERS.COM'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 1-800-FLOWERS.COM .
What Does the ROCE Trend For 1-800-FLOWERS.COM Tell Us?
On the surface, the trend of ROCE at 1-800-FLOWERS.COM doesn't inspire confidence. To be more specific, ROCE has fallen from 9.1% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't 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.
The Bottom Line On 1-800-FLOWERS.COM's ROCE
Bringing it all together, while we're somewhat encouraged by 1-800-FLOWERS.COM's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 50% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.
1-800-FLOWERS.COM does have some risks though, and we've spotted 1 warning sign for 1-800-FLOWERS.COM that you might be interested in.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.
