Returns On Capital Are Showing Encouraging Signs At Weis Markets (NYSE:WMK)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Weis Markets (NYSE:WMK) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Weis Markets is:

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

0.077 = US$132m ÷ (US$2.0b - US$327m) (Based on the trailing twelve months to March 2024).

Thus, Weis Markets has an ROCE of 7.7%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 10%.

See our latest analysis for Weis Markets

Historical performance is a great place to start when researching a stock so above you can see the gauge for Weis Markets' ROCE against it's prior returns. If you'd like to look at how Weis Markets has performed in the past in other metrics, you can view this free graph of Weis Markets' past earnings, revenue and cash flow.

What Can We Tell From Weis Markets' ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 7.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 28% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Weis Markets' ROCE

To sum it up, Weis Markets has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 91% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Weis Markets looks impressive, no company is worth an infinite price. The intrinsic value infographic for WMK helps visualize whether it is currently trading for a fair price.

While Weis Markets isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.