Stock Analysis

Should We Be Excited About The Trends Of Returns At Hibbett Sports (NASDAQ:HIBB)?

  •  Updated
NasdaqGS:HIBB
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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Hibbett Sports (NASDAQ:HIBB), they do have a high ROCE, but we weren't exactly elated from how returns are trending.

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. The formula for this calculation on Hibbett Sports is:

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

0.21 = US$121m ÷ (US$777m - US$213m) (Based on the trailing twelve months to October 2020).

Therefore, Hibbett Sports has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 12%.

See our latest analysis for Hibbett Sports

roce
NasdaqGS:HIBB Return on Capital Employed February 25th 2021

In the above chart we have measured Hibbett Sports' 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.

So How Is Hibbett Sports' ROCE Trending?

When we looked at the ROCE trend at Hibbett Sports, we didn't gain much confidence. Historically returns on capital were even higher at 35%, but they have dropped over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

While returns have fallen for Hibbett Sports in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 85% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Like most companies, Hibbett Sports does come with some risks, and we've found 2 warning signs that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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What are the risks and opportunities for Hibbett?

Hibbett, Inc. together with its subsidiaries, engages in the retail of athletic-inspired fashion products in small and mid-sized communities in the United States.

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Rewards

  • Trading at 79.6% below our estimate of its fair value

  • Earnings are forecast to grow 13.11% per year

Risks

  • High level of non-cash earnings

  • Profit margins (6.6%) are lower than last year (10.7%)

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