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Weis Markets (NYSE:WMK) Has More To Do To Multiply In Value Going Forward

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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Weis Markets (NYSE:WMK) 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. 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)

0.093 = US$143m ÷ (US$1.9b - US$327m) (Based on the trailing twelve months to September 2021).

Therefore, Weis Markets has an ROCE of 9.3%. On its own, that's a low figure but it's around the 8.0% average generated by the Consumer Retailing industry.

Check out our latest analysis for Weis Markets

roce
roce

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're interested in investigating Weis Markets' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Weis Markets. The company has employed 44% more capital in the last five years, and the returns on that capital have remained stable at 9.3%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Weis Markets' ROCE

Long story short, while Weis Markets has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 16% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

While Weis Markets doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

While Weis Markets isn't earning the highest return, check out this free list of companies that are 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.