The Trend Of High Returns At BlueLinx Holdings (NYSE:BXC) Has Us Very Interested

Simply Wall St
·3 min read

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in BlueLinx Holdings' (NYSE:BXC) returns on capital, so let's have a look.

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 BlueLinx Holdings:

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

0.34 = US$435m ÷ (US$1.5b - US$211m) (Based on the trailing twelve months to December 2022).

Thus, BlueLinx Holdings has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 16%.

See our latest analysis for BlueLinx Holdings

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In the above chart we have measured BlueLinx 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 BlueLinx Holdings.

What Does the ROCE Trend For BlueLinx Holdings Tell Us?

The trends we've noticed at BlueLinx Holdings are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 34%. Basically the business is earning more per dollar of capital invested and in addition to that, 239% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

To sum it up, BlueLinx Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 68% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if BlueLinx Holdings can keep these trends up, it could have a bright future ahead.

If you want to continue researching BlueLinx Holdings, you might be interested to know about the 1 warning sign that our analysis has discovered.

BlueLinx Holdings 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.

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

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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