Returns On Capital At Chuy's Holdings (NASDAQ:CHUY) Have Hit The Brakes

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. However, after briefly looking over the numbers, we don't think Chuy's Holdings (NASDAQ:CHUY) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Chuy's Holdings, this is the formula:

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

0.064 = US$28m ÷ (US$479m - US$43m) (Based on the trailing twelve months to March 2023).

So, Chuy's Holdings has an ROCE of 6.4%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 8.7%.

See our latest analysis for Chuy's Holdings

Above you can see how the current ROCE for Chuy's Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Chuy's Holdings

What Can We Tell From Chuy's Holdings' ROCE Trend?

The returns on capital haven't changed much for Chuy's Holdings in recent years. Over the past five years, ROCE has remained relatively flat at around 6.4% and the business has deployed 75% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Chuy's Holdings' ROCE

In summary, Chuy's Holdings has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 28% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you're still interested in Chuy's Holdings it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.