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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating 1-800-FLOWERS.COM (NASDAQ:FLWS), we don't think it's current trends fit the mold of a multi-bagger.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for 1-800-FLOWERS.COM:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.042 = US$33m ÷ (US$1.1b - US$255m) (Based on the trailing twelve months to October 2023).
Therefore, 1-800-FLOWERS.COM has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 12%.
View our latest analysis for 1-800-FLOWERS.COM
In the above chart we have measured 1-800-FLOWERS.COM's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is 1-800-FLOWERS.COM's ROCE Trending?
On the surface, the trend of ROCE at 1-800-FLOWERS.COM doesn't inspire confidence. To be more specific, ROCE has fallen from 9.1% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
What We Can Learn From 1-800-FLOWERS.COM's ROCE
In summary, 1-800-FLOWERS.COM is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last five years, the stock has given away 23% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think 1-800-FLOWERS.COM has the makings of a multi-bagger.
Like most companies, 1-800-FLOWERS.COM does come with some risks, and we've found 1 warning sign that you should be aware of.
While 1-800-FLOWERS.COM 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.