U.S. Markets closed
  • S&P 500

    4,280.15
    +72.88 (+1.73%)
     
  • Dow 30

    33,761.05
    +424.38 (+1.27%)
     
  • Nasdaq

    13,047.19
    +267.27 (+2.09%)
     
  • Russell 2000

    2,016.62
    +41.36 (+2.09%)
     
  • Crude Oil

    91.88
    -2.46 (-2.61%)
     
  • Gold

    1,818.90
    +11.70 (+0.65%)
     
  • Silver

    20.83
    +0.49 (+2.39%)
     
  • EUR/USD

    1.0257
    -0.0068 (-0.6565%)
     
  • 10-Yr Bond

    2.8490
    -0.0390 (-1.35%)
     
  • Vix

    19.53
    -0.67 (-3.32%)
     
  • GBP/USD

    1.2139
    -0.0064 (-0.5220%)
     
  • USD/JPY

    133.4800
    +0.4810 (+0.3617%)
     
  • BTC-USD

    24,303.83
    -184.20 (-0.75%)
     
  • CMC Crypto 200

    574.64
    +3.36 (+0.59%)
     
  • FTSE 100

    7,500.89
    +34.98 (+0.47%)
     
  • Nikkei 225

    28,546.98
    +727.65 (+2.62%)
     

Here's What To Make Of PVH's (NYSE:PVH) Decelerating Rates Of Return

  • Oops!
    Something went wrong.
    Please try again later.
·2 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think PVH (NYSE:PVH) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for PVH, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.078 = US$788m ÷ (US$13b - US$2.7b) (Based on the trailing twelve months to October 2021).

Thus, PVH has an ROCE of 7.8%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 15%.

See our latest analysis for PVH

roce
roce

Above you can see how the current ROCE for PVH 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 PVH.

What Can We Tell From PVH's ROCE Trend?

There hasn't been much to report for PVH's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at PVH in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In Conclusion...

In summary, PVH isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 9.0% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you're still interested in PVH it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.