Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Hibbett's (NASDAQ:HIBB) look very promising so lets take a look.
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. Analysts use this formula to calculate it for Hibbett:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = US$147m ÷ (US$951m - US$317m) (Based on the trailing twelve months to October 2023).
Thus, Hibbett has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 12%.
See our latest analysis for Hibbett
In the above chart we have measured Hibbett's 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 Hibbett.
What Can We Tell From Hibbett's ROCE Trend?
Investors would be pleased with what's happening at Hibbett. The data shows that returns on capital have increased substantially over the last five years to 23%. 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 79%. So we're very much inspired by what we're seeing at Hibbett thanks to its ability to profitably reinvest capital.
The Bottom Line
In summary, it's great to see that Hibbett 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 348% 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.
If you want to know some of the risks facing Hibbett we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.
Hibbett is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.