Yahoo Finance Urban Outfitters' (NASDAQ:URBN) Returns Have Hit A Wall
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Urban Outfitters' (NASDAQ:URBN) ROCE trend, we were pretty happy with what we saw.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Urban Outfitters is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$396m ÷ (US$4.2b - US$1.0b) (Based on the trailing twelve months to April 2024).
Therefore, Urban Outfitters has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.
View our latest analysis for Urban Outfitters
In the above chart we have measured Urban Outfitters' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Urban Outfitters .
What Does the ROCE Trend For Urban Outfitters Tell Us?
While the returns on capital are good, they haven't moved much. The company has employed 21% more capital in the last five years, and the returns on that capital have remained stable at 13%. 13% is a pretty standard return, and it provides some comfort knowing that Urban Outfitters has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
In Conclusion...
To sum it up, Urban Outfitters has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 81% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
One more thing, we've spotted 1 warning sign facing Urban Outfitters that you might find interesting.
While Urban Outfitters may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.
