Returns Are Gaining Momentum At Academy Sports and Outdoors (NASDAQ:ASO)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Academy Sports and Outdoors (NASDAQ:ASO) looks quite promising in regards to its trends of return on capital.

Understanding 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. The formula for this calculation on Academy Sports and Outdoors is:

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

0.17 = US$654m ÷ (US$4.9b - US$1.1b) (Based on the trailing twelve months to May 2024).

Therefore, Academy Sports and Outdoors has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 12% generated by the Specialty Retail industry.

Check out our latest analysis for Academy Sports and Outdoors

Above you can see how the current ROCE for Academy Sports and Outdoors 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 Academy Sports and Outdoors .

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Academy Sports and Outdoors. The data shows that returns on capital have increased substantially over the last five years to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 33% more capital is being employed now too. So we're very much inspired by what we're seeing at Academy Sports and Outdoors thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Academy Sports and Outdoors is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 51% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Academy Sports and Outdoors looks impressive, no company is worth an infinite price. The intrinsic value infographic for ASO helps visualize whether it is currently trading for a fair price.

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.

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