Some Investors May Be Worried About 1-800-FLOWERS.COM's (NASDAQ:FLWS) Returns On Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Having said that, from a first glance at 1-800-FLOWERS.COM (NASDAQ:FLWS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is 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 1-800-FLOWERS.COM is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.05 = US$41m ÷ (US$1.1b - US$266m) (Based on the trailing twelve months to July 2022).
So, 1-800-FLOWERS.COM has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Online Retail industry average of 13%.
Check out our latest analysis for 1-800-FLOWERS.COM
Above you can see how the current ROCE for 1-800-FLOWERS.COM 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 1-800-FLOWERS.COM.
What Does the ROCE Trend For 1-800-FLOWERS.COM Tell Us?
When we looked at the ROCE trend at 1-800-FLOWERS.COM, we didn't gain much confidence. Around five years ago the returns on capital were 11%, but since then they've fallen to 5.0%. However it looks like 1-800-FLOWERS.COM might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.
What We Can Learn From 1-800-FLOWERS.COM's ROCE
In summary, 1-800-FLOWERS.COM is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 35% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for 1-800-FLOWERS.COM (of which 1 is potentially serious!) that you should know about.
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.
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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.
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