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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Having said that, from a first glance at 1-800-FLOWERS.COM (NASDAQ:FLWS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)
0.036 = US$30m ÷ (US$1.1b - US$220m) (Based on the trailing twelve months to July 2023).
Thus, 1-800-FLOWERS.COM has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 13%.
Check out our latest analysis for 1-800-FLOWERS.COM
Above you can see how the current ROCE for 1-800-FLOWERS.COM compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering 1-800-FLOWERS.COM here for free.
What Does the ROCE Trend For 1-800-FLOWERS.COM Tell Us?
On the surface, the trend of ROCE at 1-800-FLOWERS.COM doesn't inspire confidence. Around five years ago the returns on capital were 9.4%, but since then they've fallen to 3.6%. However it looks like 1-800-FLOWERS.COM might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Key Takeaway
Bringing it all together, while we're somewhat encouraged by 1-800-FLOWERS.COM's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 45% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
If you're still interested in 1-800-FLOWERS.COM it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.