Ollie's Bargain Outlet Holdings (NASDAQ:OLLI) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Ollie's Bargain Outlet Holdings (NASDAQ:OLLI) and its trend of ROCE, we really 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. The formula for this calculation on Ollie's Bargain Outlet Holdings is:

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

0.18 = US$315m ÷ (US$2.0b - US$255m) (Based on the trailing twelve months to May 2021).

Therefore, Ollie's Bargain Outlet Holdings has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 15% generated by the Multiline Retail industry.

See our latest analysis for Ollie's Bargain Outlet Holdings

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Above you can see how the current ROCE for Ollie's Bargain Outlet Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Ollie's Bargain Outlet Holdings.

The Trend Of ROCE

Investors would be pleased with what's happening at Ollie's Bargain Outlet Holdings. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 105% more capital is being employed now too. So we're very much inspired by what we're seeing at Ollie's Bargain Outlet Holdings thanks to its ability to profitably reinvest capital.

Our Take On Ollie's Bargain Outlet Holdings' ROCE

To sum it up, Ollie's Bargain Outlet Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 263% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Ollie's Bargain Outlet Holdings can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

While Ollie's Bargain Outlet Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

This article by Simply Wall St is general in nature. 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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