Buckle (NYSE:BKE) Is Achieving High Returns On Its Capital
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Buckle (NYSE:BKE) looks great, so lets see what the trend can tell us.
Understanding 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 Buckle is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.48 = US$309m ÷ (US$849m - US$207m) (Based on the trailing twelve months to April 2023).
Therefore, Buckle has an ROCE of 48%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 14%.
Check out our latest analysis for Buckle
In the above chart we have measured Buckle'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 report for Buckle.
What Can We Tell From Buckle's ROCE Trend?
We like the trends that we're seeing from Buckle. Over the last five years, returns on capital employed have risen substantially to 48%. Basically the business is earning more per dollar of capital invested and in addition to that, 44% more capital is being employed now too. So we're very much inspired by what we're seeing at Buckle thanks to its ability to profitably reinvest capital.
The Bottom Line On Buckle's ROCE
All in all, it's terrific to see that Buckle is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 105% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Buckle does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.
Buckle is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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