Petco Health and Wellness Company (NASDAQ:WOOF) Has More To Do To Multiply In Value Going Forward

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Petco Health and Wellness Company (NASDAQ:WOOF), it didn't seem to tick all of these boxes.

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 Petco Health and Wellness Company:

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

0.03 = US$166m ÷ (US$6.7b - US$1.1b) (Based on the trailing twelve months to July 2023).

Thus, Petco Health and Wellness Company has an ROCE of 3.0%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 12%.

See our latest analysis for Petco Health and Wellness Company

Above you can see how the current ROCE for Petco Health and Wellness Company 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.

How Are Returns Trending?

There hasn't been much to report for Petco Health and Wellness Company's returns and its level of capital employed because both metrics have been steady for the past four years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Petco Health and Wellness Company doesn't end up being a multi-bagger in a few years time.

The Bottom Line On Petco Health and Wellness Company's ROCE

In a nutshell, Petco Health and Wellness Company has been trudging along with the same returns from the same amount of capital over the last four years. And investors appear hesitant that the trends will pick up because the stock has fallen 64% in the last year. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Petco Health and Wellness Company (of which 1 can't be ignored!) that you should know about.

While Petco Health and Wellness Company 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.

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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.