Yahoo Finance J D Wetherspoon (LON:JDW) Has More To Do To Multiply In Value Going Forward
What are the early trends we should look for to identify a stock that could 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at J D Wetherspoon (LON:JDW), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
If you haven't 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 J D Wetherspoon is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.091 = UK£142m ÷ (UK£1.9b - UK£335m) (Based on the trailing twelve months to January 2024).
Thus, J D Wetherspoon has an ROCE of 9.1%. On its own that's a low return, but compared to the average of 7.5% generated by the Hospitality industry, it's much better.
Check out our latest analysis for J D Wetherspoon
In the above chart we have measured J D Wetherspoon's 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 J D Wetherspoon .
What Does the ROCE Trend For J D Wetherspoon Tell Us?
The returns on capital haven't changed much for J D Wetherspoon in recent years. Over the past five years, ROCE has remained relatively flat at around 9.1% and the business has deployed 34% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
The Bottom Line On J D Wetherspoon's ROCE
In summary, J D Wetherspoon has simply been reinvesting capital and generating the same low rate of return as before. And investors appear hesitant that the trends will pick up because the stock has fallen 48% in the last five years. Therefore based on the analysis done in this article, we don't think J D Wetherspoon has the makings of a multi-bagger.
On a final note, we found 3 warning signs for J D Wetherspoon (1 is concerning) you should be aware of.
While J D Wetherspoon isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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
