Stock Analysis

Under The Bonnet, DICK'S Sporting Goods' (NYSE:DKS) Returns Look Impressive

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NYSE:DKS
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at DICK'S Sporting Goods' (NYSE:DKS) look very promising so lets take a look.

What is Return On Capital Employed (ROCE)?

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 DICK'S Sporting Goods:

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

0.31 = US$1.8b ÷ (US$8.4b - US$2.6b) (Based on the trailing twelve months to July 2021).

So, DICK'S Sporting Goods has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 18% earned by companies in a similar industry.

See our latest analysis for DICK'S Sporting Goods

roce
NYSE:DKS Return on Capital Employed October 10th 2021

In the above chart we have measured DICK'S Sporting Goods' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for DICK'S Sporting Goods.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at DICK'S Sporting Goods are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 31%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 117%. So we're very much inspired by what we're seeing at DICK'S Sporting Goods thanks to its ability to profitably reinvest capital.

The Bottom Line On DICK'S Sporting Goods' ROCE

In summary, it's great to see that DICK'S Sporting Goods 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. And a remarkable 143% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if DICK'S Sporting Goods can keep these trends up, it could have a bright future ahead.

DICK'S Sporting Goods does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is potentially serious...

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether DICK'S Sporting Goods is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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