The Return Trends At America's Car-Mart (NASDAQ:CRMT) Look Promising

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. So when we looked at America's Car-Mart (NASDAQ:CRMT) and its trend of ROCE, we really liked what we saw.

Understanding 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. The formula for this calculation on America's Car-Mart is:

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

0.15 = US$151m ÷ (US$1.0b - US$53m) (Based on the trailing twelve months to January 2022).

Therefore, America's Car-Mart has an ROCE of 15%. In isolation, that's a pretty standard return but against the Specialty Retail industry average of 19%, it's not as good.

View our latest analysis for America's Car-Mart

In the above chart we have measured America's Car-Mart's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From America's Car-Mart's ROCE Trend?

The trends we've noticed at America's Car-Mart are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 15%. The amount of capital employed has increased too, by 144%. So we're very much inspired by what we're seeing at America's Car-Mart thanks to its ability to profitably reinvest capital.

What We Can Learn From America's Car-Mart's ROCE

To sum it up, America's Car-Mart has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 141% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

America's Car-Mart does come with some risks though, we found 4 warning signs in our investment analysis, and 3 of those make us uncomfortable...

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.

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.