Returns on Capital Paint A Bright Future For Zumiez (NASDAQ:ZUMZ)

·2 min read

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Zumiez's (NASDAQ:ZUMZ) returns on capital, so let's have a look.

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. To calculate this metric for Zumiez, this is the formula:

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

0.24 = US$163m ÷ (US$862m - US$184m) (Based on the trailing twelve months to January 2022).

Therefore, Zumiez has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 18%.

See our latest analysis for Zumiez

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In the above chart we have measured Zumiez'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 Zumiez.

The Trend Of ROCE

The trends we've noticed at Zumiez are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 24%. The amount of capital employed has increased too, by 92%. So we're very much inspired by what we're seeing at Zumiez thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Zumiez is reaping the rewards from prior investments and is growing its capital base. And a remarkable 117% 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 Zumiez can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Zumiez, we've spotted 2 warning signs, and 1 of them is potentially serious.

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.

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