Returns At BlueLinx Holdings (NYSE:BXC) Are On The Way Up

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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 BlueLinx Holdings (NYSE:BXC) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on BlueLinx Holdings is:

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

0.074 = US$100m ÷ (US$1.6b - US$258m) (Based on the trailing twelve months to September 2024).

Thus, BlueLinx Holdings has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 12%.

Check out our latest analysis for BlueLinx Holdings

In the above chart we have measured BlueLinx Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for BlueLinx Holdings .

What Does the ROCE Trend For BlueLinx Holdings Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.4%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 59%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On BlueLinx Holdings' ROCE

All in all, it's terrific to see that BlueLinx Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 685% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching BlueLinx Holdings, you might be interested to know about the 2 warning signs that our analysis has discovered.

While BlueLinx Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.