We Like Haverty Furniture Companies' (NYSE:HVT) Returns And Here's How They're Trending
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. And in light of that, the trends we're seeing at Haverty Furniture Companies' (NYSE:HVT) look very promising so lets take a look.
Understanding 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. Analysts use this formula to calculate it for Haverty Furniture Companies:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.25 = US$118m ÷ (US$686m - US$210m) (Based on the trailing twelve months to December 2021).
So, Haverty Furniture Companies has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 20% earned by companies in a similar industry.
See our latest analysis for Haverty Furniture Companies
Above you can see how the current ROCE for Haverty Furniture Companies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Haverty Furniture Companies.
What Does the ROCE Trend For Haverty Furniture Companies Tell Us?
Investors would be pleased with what's happening at Haverty Furniture Companies. The data shows that returns on capital have increased substantially over the last five years to 25%. Basically the business is earning more per dollar of capital invested and in addition to that, 33% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line
To sum it up, Haverty Furniture Companies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 68% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Haverty Furniture Companies can keep these trends up, it could have a bright future ahead.
One final note, you should learn about the 3 warning signs we've spotted with Haverty Furniture Companies (including 2 which can't be ignored) .
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.
