The Return Trends At BBQ Holdings (NASDAQ:BBQ) Look Promising

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, BBQ Holdings (NASDAQ:BBQ) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for BBQ Holdings, this is the formula:

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

0.052 = US$8.2m ÷ (US$204m - US$45m) (Based on the trailing twelve months to April 2022).

Thus, BBQ Holdings has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 10%.

View our latest analysis for BBQ Holdings

Above you can see how the current ROCE for BBQ Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering BBQ Holdings here for free.

How Are Returns Trending?

The fact that BBQ Holdings is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 5.2% which is a sight for sore eyes. In addition to that, BBQ Holdings is employing 319% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On BBQ Holdings' ROCE

Long story short, we're delighted to see that BBQ Holdings' reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if BBQ Holdings can keep these trends up, it could have a bright future ahead.

If you'd like to know more about BBQ Holdings, we've spotted 4 warning signs, and 1 of them is potentially serious.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.