Stock Analysis

Capital Investments At Levi Strauss (NYSE:LEVI) Point To A Promising Future

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NYSE:LEVI
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Levi Strauss (NYSE:LEVI) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding 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 Levi Strauss:

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

0.21 = US$825m ÷ (US$5.7b - US$1.7b) (Based on the trailing twelve months to May 2022).

So, Levi Strauss has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

View our latest analysis for Levi Strauss

roce
NYSE:LEVI Return on Capital Employed September 26th 2022

In the above chart we have measured Levi Strauss' 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 Levi Strauss here for free.

What The Trend Of ROCE Can Tell Us

Levi Strauss deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 21% and the business has deployed 80% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Levi Strauss can keep this up, we'd be very optimistic about its future.

The Bottom Line On Levi Strauss' ROCE

In summary, we're delighted to see that Levi Strauss has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. However, despite the favorable fundamentals, the stock has fallen 10% over the last three years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing, we've spotted 1 warning sign facing Levi Strauss that you might find interesting.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Levi Strauss is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NYSE:LEVI

Levi Strauss

Levi Strauss & Co. operates as an apparel company.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation4
Future Growth2
Past Performance5
Financial Health6
Dividends2

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet with solid track record.