Shareholders Would Enjoy A Repeat Of Ingles Markets' (NASDAQ:IMKT.A) Recent Growth In Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, the ROCE of Ingles Markets (NASDAQ:IMKT.A) looks great, so lets see what the trend 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. The formula for this calculation on Ingles Markets is:

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

0.21 = US$332m ÷ (US$1.9b - US$318m) (Based on the trailing twelve months to December 2020).

Thus, Ingles Markets has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 9.8% earned by companies in a similar industry.

See our latest analysis for Ingles Markets

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ingles Markets' ROCE against it's prior returns. If you're interested in investigating Ingles Markets' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Ingles Markets is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 129% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Ingles Markets' ROCE

To bring it all together, Ingles Markets has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 81% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Ingles Markets does come with some risks, and we've found 3 warning signs that you should be aware of.

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.

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This article by Simply Wall St is general in nature. 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.
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