Stock Analysis

Ollie's Bargain Outlet Holdings (NASDAQ:OLLI) Is Looking To Continue Growing Its Returns On Capital

NasdaqGM:OLLI
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Ollie's Bargain Outlet Holdings' (NASDAQ:OLLI) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Ollie's Bargain Outlet Holdings:

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

0.14 = US$241m ÷ (US$1.9b - US$275m) (Based on the trailing twelve months to October 2021).

So, Ollie's Bargain Outlet Holdings has an ROCE of 14%. That's a pretty standard return and it's in line with the industry average of 14%.

Check out our latest analysis for Ollie's Bargain Outlet Holdings

roce
NasdaqGM:OLLI Return on Capital Employed January 20th 2022

Above you can see how the current ROCE for Ollie's Bargain Outlet Holdings 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 report on analyst forecasts for the company.

What Can We Tell From Ollie's Bargain Outlet Holdings' ROCE Trend?

Investors would be pleased with what's happening at Ollie's Bargain Outlet Holdings. Over the last five years, returns on capital employed have risen substantially to 14%. 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 85%. 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.

The Bottom Line

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 Ollie's Bargain Outlet Holdings has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 49% return over the last five years. In light of that, we think it's worth looking further into this stock because if Ollie's Bargain Outlet Holdings can keep these trends up, it could have a bright future ahead.

Like most companies, Ollie's Bargain Outlet Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

While Ollie's Bargain Outlet Holdings 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.

Valuation is complex, but we're helping make it simple.

Find out whether Ollie's Bargain Outlet Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.