The Returns On Capital At Ollie's Bargain Outlet Holdings (NASDAQ:OLLI) Don't Inspire Confidence

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Ollie's Bargain Outlet Holdings (NASDAQ:OLLI), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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)

0.12 = US$228m ÷ (US$2.3b - US$316m) (Based on the trailing twelve months to February 2024).

So, Ollie's Bargain Outlet Holdings has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Multiline Retail industry.

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

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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Ollie's Bargain Outlet Holdings .

The Trend Of ROCE

On the surface, the trend of ROCE at Ollie's Bargain Outlet Holdings doesn't inspire confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 12%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

While returns have fallen for Ollie's Bargain Outlet Holdings in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 15% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Ollie's Bargain Outlet Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for OLLI on our platform quite valuable.

While Ollie's Bargain Outlet Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.