The Trend Of High Returns At Build-A-Bear Workshop (NYSE:BBW) Has Us Very Interested
There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Build-A-Bear Workshop's (NYSE:BBW) returns on capital, so let's have a 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. Analysts use this formula to calculate it for Build-A-Bear Workshop:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.40 = US$66m ÷ (US$251m - US$85m) (Based on the trailing twelve months to October 2023).
So, Build-A-Bear Workshop has an ROCE of 40%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 12%.
See our latest analysis for Build-A-Bear Workshop
Above you can see how the current ROCE for Build-A-Bear Workshop 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.
So How Is Build-A-Bear Workshop's ROCE Trending?
The fact that Build-A-Bear Workshop is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 40% which is a sight for sore eyes. Not only that, but the company is utilizing 32% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Key Takeaway
Overall, Build-A-Bear Workshop gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 569% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you'd like to know about the risks facing Build-A-Bear Workshop, we've discovered 1 warning sign that you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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.
