Slowing Rates Of Return At Olaplex Holdings (NASDAQ:OLPX) Leave Little Room For Excitement

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Olaplex Holdings (NASDAQ:OLPX) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Olaplex Holdings:

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

0.084 = US$142m ÷ (US$1.7b - US$56m) (Based on the trailing twelve months to September 2023).

Therefore, Olaplex Holdings has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Personal Products industry average of 14%.

See our latest analysis for Olaplex Holdings

Above you can see how the current ROCE for Olaplex Holdings 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 report for Olaplex Holdings.

So How Is Olaplex Holdings' ROCE Trending?

There are better returns on capital out there than what we're seeing at Olaplex Holdings. The company has consistently earned 8.4% for the last three years, and the capital employed within the business has risen 74% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Olaplex Holdings' ROCE

In conclusion, Olaplex Holdings has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 55% over the last year, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a separate note, we've found 2 warning signs for Olaplex Holdings you'll probably want to know about.

While Olaplex 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.

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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.