Children's Place (NASDAQ:PLCE) Is Doing The Right Things To Multiply Its Share Price

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Children's Place (NASDAQ:PLCE) looks quite promising in regards to its trends of return on capital.

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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. The formula for this calculation on Children's Place is:

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

0.088 = US$19m ÷ (US$805m - US$584m) (Based on the trailing twelve months to August 2025).

Thus, Children's Place has an ROCE of 8.8%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 14%.

See our latest analysis for Children's Place

In the above chart we have measured Children's Place'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 analyst report for Children's Place .

What Does the ROCE Trend For Children's Place Tell Us?

It's great to see that Children's Place has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 8.8% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 38% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Children's Place could be selling under-performing assets since the ROCE is improving.

On a separate but related note, it's important to know that Children's Place has a current liabilities to total assets ratio of 73%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

In the end, Children's Place has proven it's capital allocation skills are good with those higher returns from less amount of capital. Although the company may be facing some issues elsewhere since the stock has plunged 73% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

If you want to know some of the risks facing Children's Place we've found 5 warning signs (4 don't sit too well with us!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.