If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, we've noticed some promising trends at Tile Shop Holdings (NASDAQ:TTSH) so let's look a bit deeper.
Understanding 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 Tile Shop Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0099 = US$2.4m ÷ (US$325m - US$86m) (Based on the trailing twelve months to March 2025).
Thus, Tile Shop Holdings has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 13%.
Check out our latest analysis for Tile Shop Holdings
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Tile Shop Holdings has performed in the past in other metrics, you can view this free graph of Tile Shop Holdings' past earnings, revenue and cash flow.
What Can We Tell From Tile Shop Holdings' ROCE Trend?
It's nice to see that ROCE is headed in the right direction, even if it is still relatively low. The figures show that over the last five years, returns on capital have grown by 90%. The company is now earning US$0.01 per dollar of capital employed. In regards to capital employed, Tile Shop Holdings appears to been achieving more with less, since the business is using 22% less capital to run its operation. Tile Shop Holdings may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
What We Can Learn From Tile Shop Holdings' ROCE
In summary, it's great to see that Tile Shop Holdings has been able to turn things around and earn higher returns on lower amounts of capital. And a remarkable 581% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
On a separate note, we've found 2 warning signs for Tile Shop Holdings you'll probably want to know about.
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.