Stock Analysis

Ingles Markets (NASDAQ:IMKT.A) Is Investing Its Capital With Increasing Efficiency

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NasdaqGS:IMKT.A
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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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Ingles Markets' (NASDAQ:IMKT.A) returns on capital, so let's have a look.

What Is 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. The formula for this calculation on Ingles Markets is:

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

0.20 = US$371m ÷ (US$2.2b - US$319m) (Based on the trailing twelve months to June 2022).

Therefore, Ingles Markets has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 9.6% earned by companies in a similar industry.

Our analysis indicates that IMKT.A is potentially undervalued!

roce
NasdaqGS:IMKT.A Return on Capital Employed November 29th 2022

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Ingles Markets, check out these free graphs here.

So How Is Ingles Markets' ROCE Trending?

Ingles Markets is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 20%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 32%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

To sum it up, Ingles Markets has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 267% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Ingles Markets can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

What are the risks and opportunities for Ingles Markets?

Ingles Markets, Incorporated operates a chain of supermarkets in the southeast United States.

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Rewards

  • Price-To-Earnings ratio (6.4x) is below the US market (15.4x)

  • Earnings have grown 30.5% per year over the past 5 years

Risks

  • Significant insider selling over the past 3 months

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