Capital Investment Trends At Leslie's (NASDAQ:LESL) Look Strong
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, the ROCE of Leslie's (NASDAQ:LESL) looks attractive right now, so lets see what the trend of returns can tell us.
What is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Leslie's is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.41 = US$226m ÷ (US$811m - US$254m) (Based on the trailing twelve months to January 2022).
Therefore, Leslie's has an ROCE of 41%. That's a fantastic return and not only that, it outpaces the average of 18% earned by companies in a similar industry.
See our latest analysis for Leslie's
In the above chart we have measured Leslie'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 Leslie's here for free.
The Trend Of ROCE
We'd be pretty happy with returns on capital like Leslie's. Over the past three years, ROCE has remained relatively flat at around 41% and the business has deployed 77% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Leslie's can keep this up, we'd be very optimistic about its future.
Our Take On Leslie's' ROCE
Leslie's has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Yet over the last year the stock has declined 33%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
Leslie's does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
