Stock Analysis

Albertsons Companies (NYSE:ACI) Shareholders Will Want The ROCE Trajectory To Continue

NYSE:ACI
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Albertsons Companies (NYSE:ACI) and its trend of ROCE, we really liked what we saw.

What Is 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. The formula for this calculation on Albertsons Companies is:

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

0.14 = US$2.4b ÷ (US$26b - US$8.4b) (Based on the trailing twelve months to February 2023).

So, Albertsons Companies has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Consumer Retailing industry average of 11% it's much better.

Check out our latest analysis for Albertsons Companies

roce
NYSE:ACI Return on Capital Employed April 13th 2023

In the above chart we have measured Albertsons Companies' 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 Albertsons Companies here for free.

The Trend Of ROCE

Albertsons Companies has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 511% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To sum it up, Albertsons Companies is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 15% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, Albertsons Companies does come with some risks, and we've found 4 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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

Find out whether Albertsons Companies 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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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.