Why You Should Care About Buckle's (NYSE:BKE) Strong Returns On Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So, when we ran our eye over Buckle's (NYSE:BKE) trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Buckle, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.41 = US$310m ÷ (US$994m - US$239m) (Based on the trailing twelve months to October 2021).
Thus, Buckle has an ROCE of 41%. That's a fantastic return and not only that, it outpaces the average of 20% earned by companies in a similar industry.
See our latest analysis for Buckle
In the above chart we have measured Buckle's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Buckle here for free.
How Are Returns Trending?
In terms of Buckle's history of ROCE, it's quite impressive. The company has employed 53% more capital in the last five years, and the returns on that capital have remained stable at 41%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
What We Can Learn From Buckle's ROCE
In summary, we're delighted to see that Buckle has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has done incredibly well with a 245% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
One final note, you should learn about the 4 warning signs we've spotted with Buckle (including 1 which shouldn't be ignored) .
Buckle is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
