Returns On Capital Signal Tricky Times Ahead For Casey's General Stores (NASDAQ:CASY)

Simply Wall St
·3 min read

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Casey's General Stores (NASDAQ:CASY), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Casey's General Stores:

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

0.12 = US$500m ÷ (US$5.1b - US$741m) (Based on the trailing twelve months to July 2021).

Thus, Casey's General Stores has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Consumer Retailing industry.

View our latest analysis for Casey's General Stores

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Above you can see how the current ROCE for Casey's General Stores 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 Casey's General Stores.

What Can We Tell From Casey's General Stores' ROCE Trend?

The trend of ROCE doesn't look fantastic because it's fallen from 16% five years ago, while the business's capital employed increased by 76%. That being said, Casey's General Stores raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Casey's General Stores' earnings and if they change as a result from the capital raise.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Casey's General Stores. And the stock has followed suit returning a meaningful 73% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

Casey's General Stores does have some risks though, and we've spotted 2 warning signs for Casey's General Stores that you might be interested in.

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.

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.

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