Returns On Capital At Carter's (NYSE:CRI) Have Stalled

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Carter's (NYSE:CRI) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Carter's, this is the formula:

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

0.13 = US$257m ÷ (US$2.3b - US$409m) (Based on the trailing twelve months to March 2025).

Thus, Carter's has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.

Check out our latest analysis for Carter's

Above you can see how the current ROCE for Carter's compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Carter's .

What Can We Tell From Carter's' ROCE Trend?

Over the past five years, Carter's' ROCE has remained relatively flat while the business is using 29% less capital than before. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. You could assume that if this continues, the business will be smaller in a few year time, so probably not a multi-bagger.

The Bottom Line

It's a shame to see that Carter's is effectively shrinking in terms of its capital base. And in the last five years, the stock has given away 53% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 2 warning signs with Carter's (at least 1 which is a bit concerning) , and understanding them would certainly be useful.

While Carter's 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.