Return Trends At Weis Markets (NYSE:WMK) Aren't Appealing

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Weis Markets (NYSE:WMK) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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 Weis Markets is:

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

0.068 = US$119m ÷ (US$2.1b - US$320m) (Based on the trailing twelve months to June 2024).

Therefore, Weis Markets has an ROCE of 6.8%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 9.4%.

See our latest analysis for Weis Markets

Historical performance is a great place to start when researching a stock so above you can see the gauge for Weis Markets' ROCE against it's prior returns. If you're interested in investigating Weis Markets' past further, check out this free graph covering Weis Markets' past earnings, revenue and cash flow.

The Trend Of ROCE

The returns on capital haven't changed much for Weis Markets in recent years. The company has consistently earned 6.8% for the last five years, and the capital employed within the business has risen 29% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Weis Markets' ROCE

As we've seen above, Weis Markets' returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 91% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Weis Markets could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for WMK 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.