There Are Reasons To Feel Uneasy About 1-800-FLOWERS.COM's (NASDAQ:FLWS) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at 1-800-FLOWERS.COM (NASDAQ:FLWS), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on 1-800-FLOWERS.COM is:

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

0.023 = US$20m ÷ (US$1.2b - US$344m) (Based on the trailing twelve months to January 2023).

Thus, 1-800-FLOWERS.COM has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Online Retail industry average of 10%.

See our latest analysis for 1-800-FLOWERS.COM

Above you can see how the current ROCE for 1-800-FLOWERS.COM 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 1-800-FLOWERS.COM.

So How Is 1-800-FLOWERS.COM's ROCE Trending?

When we looked at the ROCE trend at 1-800-FLOWERS.COM, we didn't gain much confidence. To be more specific, ROCE has fallen from 8.4% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On 1-800-FLOWERS.COM's ROCE

Bringing it all together, while we're somewhat encouraged by 1-800-FLOWERS.COM's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 18% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing to note, we've identified 2 warning signs with 1-800-FLOWERS.COM and understanding them should be part of your investment process.

While 1-800-FLOWERS.COM may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.