Boot Barn Holdings (NYSE:BOOT) Is Investing Its Capital With Increasing Efficiency

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Boot Barn Holdings' (NYSE:BOOT) returns on capital, so let's have a look.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Boot Barn Holdings:

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

0.22 = US$231m ÷ (US$1.5b - US$445m) (Based on the trailing twelve months to December 2022).

Therefore, Boot Barn Holdings has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 17%.

Check out our latest analysis for Boot Barn Holdings

In the above chart we have measured Boot Barn Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Boot Barn Holdings here for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Boot Barn Holdings. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 153%. So we're very much inspired by what we're seeing at Boot Barn Holdings thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Boot Barn Holdings can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 354% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Boot Barn Holdings can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Boot Barn Holdings, we've discovered 1 warning sign that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.