Investors Met With Slowing Returns on Capital At Under Armour (NYSE:UAA)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. In light of that, when we looked at Under Armour (NYSE:UAA) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Under Armour is:

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

0.072 = US$236m ÷ (US$4.6b - US$1.3b) (Based on the trailing twelve months to December 2024).

So, Under Armour has an ROCE of 7.2%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 13%.

View our latest analysis for Under Armour

Above you can see how the current ROCE for Under Armour 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 analyst report for Under Armour .

What Can We Tell From Under Armour's ROCE Trend?

Things have been pretty stable at Under Armour, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Under Armour doesn't end up being a multi-bagger in a few years time.

The Bottom Line On Under Armour's ROCE

In a nutshell, Under Armour has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 40% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you're still interested in Under Armour it's worth checking out our FREE intrinsic value approximation for UAA to see if it's trading at an attractive price in other respects.

While Under Armour 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.