BJ's Wholesale Club Holdings (NYSE:BJ) Is Doing The Right Things To Multiply Its Share Price

Simply Wall St
·2 min read

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. So when we looked at BJ's Wholesale Club Holdings (NYSE:BJ) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on BJ's Wholesale Club Holdings is:

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

0.18 = US$627m ÷ (US$5.4b - US$2.0b) (Based on the trailing twelve months to May 2021).

Thus, BJ's Wholesale Club Holdings has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 8.3% generated by the Consumer Retailing industry.

Check out our latest analysis for BJ's Wholesale Club Holdings

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In the above chart we have measured BJ's Wholesale Club Holdings' 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 BJ's Wholesale Club Holdings.

What Can We Tell From BJ's Wholesale Club Holdings' ROCE Trend?

Investors would be pleased with what's happening at BJ's Wholesale Club Holdings. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 18%. The amount of capital employed has increased too, by 73%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that BJ's Wholesale Club Holdings is reaping the rewards from prior investments and is growing its capital base. And with a respectable 96% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. 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.

On a separate note, we've found 1 warning sign for BJ's Wholesale Club Holdings you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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