What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. With that in mind, the ROCE of Ollie's Bargain Outlet Holdings (NASDAQ:OLLI) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Ollie's Bargain Outlet Holdings, this is the formula:

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

0.12 = US$246m ÷ (US$2.3b - US$311m) (Based on the trailing twelve months to May 2024).

Thus, Ollie's Bargain Outlet Holdings has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

Above you can see how the current ROCE for Ollie's Bargain Outlet Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Ollie's Bargain Outlet Holdings .

What Does the ROCE Trend For Ollie's Bargain Outlet Holdings Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 58% more capital in the last five years, and the returns on that capital have remained stable at 12%. 12% is a pretty standard return, and it provides some comfort knowing that Ollie's Bargain Outlet Holdings has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Ollie's Bargain Outlet Holdings' ROCE

In the end, Ollie's Bargain Outlet Holdings has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 22% over the last five years for shareholders who have owned the stock in this period. So to determine if Ollie's Bargain Outlet Holdings is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Ollie's Bargain Outlet Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for OLLI on our platform quite valuable.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.