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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Under Armour (NYSE:UAA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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. The formula for this calculation on Under Armour is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.067 = US$221m ÷ (US$4.5b - US$1.2b) (Based on the trailing twelve months to September 2024).
Thus, Under Armour has an ROCE of 6.7%. Ultimately, that's a low return and it under-performs the Luxury industry average of 13%.
Check out our latest analysis for Under Armour
In the above chart we have measured Under Armour's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Under Armour .
What Can We Tell From Under Armour's ROCE Trend?
There hasn't been much to report for Under Armour's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Under Armour to be a multi-bagger going forward.
What We Can Learn From Under Armour's ROCE
In a nutshell, Under Armour has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 59% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Under Armour has the makings of a multi-bagger.
On a separate note, we've found 1 warning sign for Under Armour you'll probably want to know about.
While Under Armour isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.