19-05-2025
Investors Will Want BJ's Wholesale Club Holdings' (NYSE:BJ) Growth In ROCE To Persist
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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in BJ's Wholesale Club Holdings' (NYSE:BJ) returns on capital, so let's have a look.
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If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for BJ's Wholesale Club Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$781m ÷ (US$7.1b - US$2.5b) (Based on the trailing twelve months to February 2025).
Thus, BJ's Wholesale Club Holdings has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Consumer Retailing industry average of 11% it's much better.
View our latest analysis for BJ's Wholesale Club Holdings
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, you can check out the forecasts from the analysts covering BJ's Wholesale Club Holdings for free.
Investors would be pleased with what's happening at BJ's Wholesale Club Holdings. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 31% more capital is being employed now too. So we're very much inspired by what we're seeing at BJ's Wholesale Club Holdings thanks to its ability to profitably reinvest capital.
To sum it up, BJ's Wholesale Club Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you'd like to know about the risks facing BJ's Wholesale Club Holdings, we've discovered 1 warning sign that you should be aware of.
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