Shareholders Are Optimistic That Pet Valu Holdings (TSE:PET) Will Multiply In Value

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. That's why when we briefly looked at Pet Valu Holdings' (TSE:PET) ROCE trend, we were very happy with what we saw.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Pet Valu Holdings:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.29 = CA$160m ÷ (CA$740m - CA$189m) (Based on the trailing twelve months to December 2022).

Thus, Pet Valu Holdings has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

See our latest analysis for Pet Valu Holdings

Above you can see how the current ROCE for Pet Valu Holdings 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 Pet Valu Holdings' ROCE Trending?

In terms of Pet Valu Holdings' history of ROCE, it's quite impressive. The company has consistently earned 29% for the last three years, and the capital employed within the business has risen 39% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Pet Valu Holdings can keep this up, we'd be very optimistic about its future.

Our Take On Pet Valu Holdings' ROCE

Pet Valu Holdings has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Therefore it's no surprise that shareholders have earned a respectable 26% return if they held over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 1 warning sign for Pet Valu Holdings that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.