Stock Analysis

There's Been No Shortage Of Growth Recently For BJ's Wholesale Club Holdings' (NYSE:BJ) Returns On Capital

NYSE:BJ
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in BJ's Wholesale Club Holdings' (NYSE:BJ) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for BJ's Wholesale Club Holdings:

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

0.17 = US$660m ÷ (US$6.0b - US$2.2b) (Based on the trailing twelve months to April 2022).

So, BJ's Wholesale Club Holdings has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Consumer Retailing industry average of 8.3% it's much better.

View our latest analysis for BJ's Wholesale Club Holdings

roce
NYSE:BJ Return on Capital Employed June 26th 2022

Above you can see how the current ROCE for BJ's Wholesale Club Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for BJ's Wholesale Club Holdings.

So How Is BJ's Wholesale Club Holdings' ROCE Trending?

BJ's Wholesale Club Holdings is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 92% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From BJ's Wholesale Club Holdings' ROCE

All in all, it's terrific to see that BJ's Wholesale Club Holdings is reaping the rewards from prior investments and is growing its capital base. And a remarkable 148% total return over the last three years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with BJ's Wholesale Club Holdings and understanding this should be part of your investment process.

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 BJ's Wholesale Club Holdings 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.