Returns On Capital At Weis Markets (NYSE:WMK) Have Stalled
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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Weis Markets (NYSE:WMK), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Weis Markets:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.084 = US$141m ÷ (US$1.9b - US$254m) (Based on the trailing twelve months to September 2023).
So, Weis Markets has an ROCE of 8.4%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 11%.
View our latest analysis for Weis Markets
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Weis Markets, check out these free graphs here.
The Trend Of ROCE
The returns on capital haven't changed much for Weis Markets in recent years. Over the past five years, ROCE has remained relatively flat at around 8.4% and the business has deployed 45% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
The Bottom Line On Weis Markets' ROCE
Long story short, while Weis Markets has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 57% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.
One more thing, we've spotted 1 warning sign facing Weis Markets that you might find interesting.
While Weis Markets may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
