Returns Are Gaining Momentum At Weis Markets (NYSE:WMK)
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. 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, we've noticed some promising trends at Weis Markets (NYSE:WMK) so let's look a bit deeper.
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. To calculate this metric for Weis Markets, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.091 = US$148m ÷ (US$1.9b - US$315m) (Based on the trailing twelve months to April 2023).
Therefore, Weis Markets has an ROCE of 9.1%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 12%.
Check out our latest analysis for Weis Markets
Historical performance is a great place to start when researching a stock so above you can see the gauge for Weis Markets' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Weis Markets, check out these free graphs here.
What Does the ROCE Trend For Weis Markets Tell Us?
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 9.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 41% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
Our Take On Weis Markets' ROCE
All in all, it's terrific to see that Weis Markets is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 24% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
While Weis Markets looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether WMK is currently trading for a fair price.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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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