Utz Brands (NYSE:UTZ) Might Be Having Difficulty Using Its Capital Effectively

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Utz Brands (NYSE:UTZ) 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)?

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 Utz Brands is:

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

0.02 = US$48m ÷ (US$2.7b - US$209m) (Based on the trailing twelve months to June 2024).

Thus, Utz Brands has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 11%.

See our latest analysis for Utz Brands

Above you can see how the current ROCE for Utz Brands 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 analyst report for Utz Brands .

What Can We Tell From Utz Brands' ROCE Trend?

On the surface, the trend of ROCE at Utz Brands doesn't inspire confidence. Around five years ago the returns on capital were 7.1%, but since then they've fallen to 2.0%. However it looks like Utz Brands might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Utz Brands' ROCE

Bringing it all together, while we're somewhat encouraged by Utz Brands' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 77% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One final note, you should learn about the 2 warning signs we've spotted with Utz Brands (including 1 which doesn't sit too well with us) .

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.