We Think Kontoor Brands (NYSE:KTB) Might Have The DNA Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 looked at the ROCE trend of Kontoor Brands (NYSE:KTB) we really liked 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. To calculate this metric for Kontoor Brands, this is the formula:

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

0.28 = US$340m ÷ (US$1.6b - US$389m) (Based on the trailing twelve months to July 2023).

Thus, Kontoor Brands has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Luxury industry average of 14%.

Check out our latest analysis for Kontoor Brands

In the above chart we have measured Kontoor Brands' 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 report on analyst forecasts for the company.

So How Is Kontoor Brands' ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Kontoor Brands. We found that the returns on capital employed over the last five years have risen by 29%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Kontoor Brands appears to been achieving more with less, since the business is using 27% less capital to run its operation. Kontoor Brands may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Key Takeaway

In a nutshell, we're pleased to see that Kontoor Brands has been able to generate higher returns from less capital. Since the stock has returned a staggering 146% to shareholders over the last three years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.