Public Companies

Here's What To Make Of Boot Barn Holdings' (NYSE:BOOT) Decelerating Rates Of Return

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So, when we ran our eye over Boot Barn Holdings' (NYSE:BOOT) trend of ROCE, we liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Boot Barn Holdings, this is the formula:

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

0.12 = US$86m ÷ (US$934m - US$222m) (Based on the trailing twelve months to March 2021).

Thus, Boot Barn Holdings has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Specialty Retail industry average it falls behind.

roceNYSE:BOOT Return on Capital Employed July 28th 2021

Above you can see how the current ROCE for Boot Barn Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Boot Barn Holdings.

So How Is Boot Barn Holdings' ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 84% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Boot Barn Holdings has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

In the end, Boot Barn Holdings has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 746% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

One more thing to note, we've identified 2 warning signs with Boot Barn Holdings and understanding these should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

This article by Simply Wall St is general in nature. 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.

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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