Yahoo Finance Under The Bonnet, Build-A-Bear Workshop's (NYSE:BBW) Returns Look Impressive
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, the ROCE of Build-A-Bear Workshop (NYSE:BBW) looks great, so lets see what the trend can tell us.
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. To calculate this metric for Build-A-Bear Workshop, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.35 = US$66m ÷ (US$272m - US$84m) (Based on the trailing twelve months to February 2024).
Therefore, Build-A-Bear Workshop has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.
See our latest analysis for Build-A-Bear Workshop
In the above chart we have measured Build-A-Bear Workshop's 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 Build-A-Bear Workshop for free.
What Can We Tell From Build-A-Bear Workshop's ROCE Trend?
We're delighted to see that Build-A-Bear Workshop is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 35% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Build-A-Bear Workshop is utilizing 61% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
In Conclusion...
Long story short, we're delighted to see that Build-A-Bear Workshop's reinvestment activities have paid off and the company is now profitable. And a remarkable 425% 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.
On a separate note, we've found 2 warning signs for Build-A-Bear Workshop you'll probably want to know about.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.
