First Watch Restaurant Group (NASDAQ:FWRG) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. 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 First Watch Restaurant Group (NASDAQ:FWRG) and its trend of ROCE, we really liked what we saw.

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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. To calculate this metric for First Watch Restaurant Group, this is the formula:

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

0.024 = US$34m ÷ (US$1.5b - US$142m) (Based on the trailing twelve months to March 2025).

Therefore, First Watch Restaurant Group has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 10%.

Check out our latest analysis for First Watch Restaurant Group

Above you can see how the current ROCE for First Watch Restaurant Group 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 analyst report for First Watch Restaurant Group .

What Can We Tell From First Watch Restaurant Group's ROCE Trend?

The fact that First Watch Restaurant Group 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 2.4% which is a sight for sore eyes. Not only that, but the company is utilizing 53% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On First Watch Restaurant Group's ROCE

In summary, it's great to see that First Watch Restaurant Group has managed to break into profitability and is continuing to reinvest in its business. Since the stock has only returned 5.3% to shareholders over the last three years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing to note, we've identified 3 warning signs with First Watch Restaurant Group and understanding them should be part of your investment process.

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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.