Yahoo Finance BJ's Wholesale Club Holdings (NYSE:BJ) Might Have The Makings Of A Multi-Bagger
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, BJ's Wholesale Club Holdings (NYSE:BJ) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on BJ's Wholesale Club Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$792m ÷ (US$6.8b - US$2.5b) (Based on the trailing twelve months to May 2024).
Therefore, BJ's Wholesale Club Holdings has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 10% generated by the Consumer Retailing industry.
View our latest analysis for BJ's Wholesale Club Holdings
In the above chart we have measured BJ's Wholesale Club Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for BJ's Wholesale Club Holdings .
What Can We Tell From BJ's Wholesale Club Holdings' ROCE Trend?
We like the trends that we're seeing from BJ's Wholesale Club Holdings. The data shows that returns on capital have increased substantially over the last five years to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 21%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
Our Take On BJ's Wholesale Club Holdings' ROCE
All in all, it's terrific to see that BJ's Wholesale Club Holdings is reaping the rewards from prior investments and is growing its capital base. And a remarkable 243% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
One more thing, we've spotted 2 warning signs facing BJ's Wholesale Club Holdings that you might find interesting.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
