Slowing Rates Of Return At Grocery Outlet Holding (NASDAQ:GO) Leave Little Room For Excitement

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Although, when we looked at Grocery Outlet Holding (NASDAQ:GO), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Grocery Outlet Holding:

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

0.036 = US$103m ÷ (US$3.2b - US$350m) (Based on the trailing twelve months to December 2024).

So, Grocery Outlet Holding has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 11%.

View our latest analysis for Grocery Outlet Holding

In the above chart we have measured Grocery Outlet Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Grocery Outlet Holding .

What Can We Tell From Grocery Outlet Holding's ROCE Trend?

In terms of Grocery Outlet Holding's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 3.6% for the last five years, and the capital employed within the business has risen 43% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

In summary, Grocery Outlet Holding has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 64% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a separate note, we've found 3 warning signs for Grocery Outlet Holding you'll probably want to know about.

While Grocery Outlet Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.