U.S. markets closed
  • S&P Futures

    4,473.75
    -0.50 (-0.01%)
     
  • Dow Futures

    34,750.00
    +1.00 (+0.00%)
     
  • Nasdaq Futures

    15,515.50
    -2.25 (-0.01%)
     
  • Russell 2000 Futures

    2,226.00
    -1.90 (-0.09%)
     
  • Crude Oil

    72.52
    -0.09 (-0.12%)
     
  • Gold

    1,759.30
    +2.60 (+0.15%)
     
  • Silver

    22.93
    +0.14 (+0.62%)
     
  • EUR/USD

    1.1773
    +0.0001 (+0.01%)
     
  • 10-Yr Bond

    1.3310
    +0.0270 (+2.07%)
     
  • Vix

    18.69
    +0.51 (+2.81%)
     
  • GBP/USD

    1.3796
    -0.0001 (-0.00%)
     
  • USD/JPY

    109.8450
    +0.1270 (+0.12%)
     
  • BTC-USD

    47,971.68
    +415.39 (+0.87%)
     
  • CMC Crypto 200

    1,227.46
    -5.83 (-0.47%)
     
  • FTSE 100

    7,027.48
    +10.99 (+0.16%)
     
  • Nikkei 225

    30,485.11
    +161.77 (+0.53%)
     

Here's What Sportsman's Warehouse Holdings' (NASDAQ:SPWH) Strong Returns On Capital Means

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Sportsman's Warehouse Holdings (NASDAQ:SPWH) looks attractive right now, so lets see what the trend of returns 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. To calculate this metric for Sportsman's Warehouse Holdings, this is the formula:

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

0.25 = US$103m ÷ (US$697m - US$283m) (Based on the trailing twelve months to October 2020).

Therefore, Sportsman's Warehouse Holdings has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

Check out our latest analysis for Sportsman's Warehouse Holdings

roce
roce

Above you can see how the current ROCE for Sportsman's Warehouse Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

In terms of Sportsman's Warehouse Holdings' history of ROCE, it's quite impressive. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 142% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

Another thing to note, Sportsman's Warehouse Holdings has a high ratio of current liabilities to total assets of 41%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Sportsman's Warehouse Holdings' ROCE

In short, we'd argue Sportsman's Warehouse Holdings has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. However, over the last five years, the stock has only delivered a 33% return to shareholders who held over that period. So to determine if Sportsman's Warehouse Holdings is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you'd like to know more about Sportsman's Warehouse Holdings, we've spotted 2 warning signs, and 1 of them is significant.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.