Yahoo Finance Shareholders Would Enjoy A Repeat Of DICK'S Sporting Goods' (NYSE:DKS) Recent Growth In Returns
What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at DICK'S Sporting Goods' (NYSE:DKS) look very promising so lets take a look.
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. To calculate this metric for DICK'S Sporting Goods, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = US$1.4b ÷ (US$9.3b - US$2.8b) (Based on the trailing twelve months to February 2024).
Therefore, DICK'S Sporting Goods has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 13%.
Check out our latest analysis for DICK'S Sporting Goods
In the above chart we have measured DICK'S Sporting Goods' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering DICK'S Sporting Goods for free.
What Does the ROCE Trend For DICK'S Sporting Goods Tell Us?
The trends we've noticed at DICK'S Sporting Goods are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 21%. The amount of capital employed has increased too, by 142%. So we're very much inspired by what we're seeing at DICK'S Sporting Goods thanks to its ability to profitably reinvest capital.
Our Take On DICK'S Sporting Goods' ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what DICK'S Sporting Goods has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Like most companies, DICK'S Sporting Goods does come with some risks, and we've found 1 warning sign that you should be aware of.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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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.
