Stock Analysis

Shareholders Would Enjoy A Repeat Of Hibbett's (NASDAQ:HIBB) Recent Growth In Returns

  •  Updated
NasdaqGS:HIBB
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Hibbett's (NASDAQ:HIBB) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

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 Hibbett is:

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

0.42 = US$253m ÷ (US$800m - US$203m) (Based on the trailing twelve months to July 2021).

Thus, Hibbett has an ROCE of 42%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 17%.

View our latest analysis for Hibbett

roce
NasdaqGS:HIBB Return on Capital Employed September 4th 2021

In the above chart we have measured Hibbett'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.

How Are Returns Trending?

We like the trends that we're seeing from Hibbett. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 42%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 72%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Hibbett's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Hibbett has. Since the stock has returned a staggering 155% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Hibbett can keep these trends up, it could have a bright future ahead.

Hibbett does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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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