Capital Investments at YETI Holdings (NYSE: YETI) Point to a Bright Future
If you are looking for a multi-bagger, there are a few things to look out for. A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in connection with growth amount capital employed. Put simply, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. So when we looked through our eyes YETI Holdings’ (NYSE: YETI) trend of the ROCE, we really liked what we saw.
What is Return on Employee Capital (ROCE)?
If you’ve never worked with ROCE before, it measures the âreturnâ (profit before tax) that a business generates on capital employed in its business. To calculate this metric for YETI Holdings, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) Ã· (Total assets – Current liabilities)
0.47 = US $ 264 million Ã· (US $ 864 million – US $ 304 million) (Based on the last twelve months up to July 2021).
Thereby, YETI Holdings has a ROCE of 47%. It’s a fantastic return and not only that, it exceeds the 24% average earned by companies in a similar industry.
Check out our latest review for YETI Holdings
Above you can see how YETI Holdings’ current ROCE compares to its past returns on capital, but there is little you can say about the past. If you want, you can check out the analysts’ forecasts covering YETI Holdings here for free.
What does the ROCE trend tell us for YETI Holdings?
In terms of YETI Holdings’ ROCE history, that’s pretty impressive. Over the past five years, ROCE has remained relatively stable at around 47% and the company has deployed 60% additional capital in its operations. Now that the ROCE is attractive at 47%, this combination is actually quite attractive because it means that the company can constantly put money in to work and generate those high returns. If YETI Holdings can keep up this pace, we would be very optimistic about its future.
Another point to note, we have noticed that the company has increased its current liabilities over the past five years. This is intriguing because if current liabilities had not increased to 35% of total assets, this reported ROCE would likely be less than 47% because total capital employed would be higher. The ROCE of 47% could be even lower if current liabilities were not 35% of total assets, as the formula would show a broader base of total capital employed. So even if the current liabilities are not high right now, keep an eye out for if they increase further, as this can introduce some elements of risk.
What we can learn from YETI Holdings’ ROCE
YETI Holdings has demonstrated its competence in generating high returns on increasing amounts of capital employed, which we are delighted with. And long-term investors would be delighted with the 101% return they’ve received over the past year. So while investors seem to recognize these promising trends, we still believe the stock deserves further research.
Like most businesses, YETI Holdings comes with certain risks, and we have found 1 warning sign that you need to be aware of.
If you’d like to see other companies driving high returns, check out our free List of high yielding companies with strong balance sheets here.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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