If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at American Eagle Outfitters (NYSE:AEO), it didn't seem to tick all of these boxes.
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. The formula for this calculation on American Eagle Outfitters is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = US$335m ÷ (US$3.5b - US$831m) (Based on the trailing twelve months to October 2023).
Thus, American Eagle Outfitters has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Specialty Retail industry average of 13%.
NYSE:AEO Return on Capital Employed February 28th 2024
Above you can see how the current ROCE for American Eagle Outfitters 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 analyst report for American Eagle Outfitters .
So How Is American Eagle Outfitters' ROCE Trending?
In terms of American Eagle Outfitters' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 26% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
In Conclusion...
In summary, American Eagle Outfitters is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 26% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
One more thing to note, we've identified 2 warning signs with American Eagle Outfitters and understanding them should be part of your investment process.
While American Eagle Outfitters isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
潜在的な多バッガーを見つけたい場合、しばしば手がかりとなる基礎的なトレンドがあります。他のことの中で、2つのことを見たいと思います。第1に、増加する資本利回り(ROCE)、第2に、増加する資本投下額。最終的には、利益を増加する収益率で再投資するビジネスであることを示します。しかし、American Eagle Outfitters(nyse: AEO)を見たとき、それらの箱をすべてチェックしたとは思えませんでした。資本利回り(ROCE)とは何ですか?不明な場合は説明すると、ROCEは、会社がビジネスに投資した資本に対してどれだけの事前税収益率(%)を稼いでいるかを評価するメトリックです。 American Eagle Outfittersの計算式は次のとおりです。資本投下額の増加に加えて、使われた資本に対する収益の増加を見たいと思うでしょう。
nyse: AEO Return on Capital Employed February 28th 2024上で、現在のAmerican Eagle OutfittersのROCEが過去のキャピタルリターンと比較してどのようになっているかを確認できますが、過去からはあまり読み取ることができません。これからどのような予測を行うかについて分析者がどのように考えているかを知りたい場合は、American Eagle Outfittersの無料アナリストレポートをチェックしてください。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。