Sprouts Farmers Market (NASDAQ: SFM) failed to boost yields

What are the first trends to look for to identify a title that could multiply over the long term? A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in connection with growth quantity capital employed. Basically, this means that a business has profitable initiatives that it can keep reinvesting in, which is a hallmark of a dialing machine. So when we looked through our eyes Sprout farmers market (NASDAQ: SFM) ROCE trend, we liked what we saw.

Return on capital employed (ROCE): what is it?

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Sprouts Farmers Market is:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.16 = $ 376 million ÷ ($ 2.9 billion – $ 507 million) (Based on the last twelve months up to October 2021).

Thereby, Sprouts Farmers Market has a ROCE of 16%. On its own, this is a standard return, but it is far better than the 8.0% generated by the retail industry.

Check out our latest review for Sprouts Farmers Market

crossbreed

In the chart above, we’ve measured Sprouts Farmers Market’s past ROCE against past performance, but arguably the future is more important. If you’d like to see what analysts are forecasting for the future, you should check out our free report for Sprouts Farmers Market.

What does the ROCE trend tell us for the sprout growers market?

While current returns on capital are decent, they haven’t changed much. The company has steadily gained 16% over the past five years, and the capital employed within the company has increased 100% during this period. 16% is a pretty standard return, and it’s reassuring knowing that Sprouts Farmers Market has always earned that amount. Stable returns in this basic stage can be unattractive, but if they can be sustained over the long term, they often offer nice rewards for shareholders.

The bottom line

The main thing to remember is that Sprouts Farmers Market has a proven ability to continually reinvest at respectable rates of return. And given that the stock has only risen 36% in the past five years, we suspect the market is starting to recognize these trends. So, to determine if Sprouts Farmers Market is a multi-bagger in the future, we suggest delving into other business fundamentals.

Sprouts Farmers Market might be trading attractively in other ways, so you might find our free estimate of intrinsic value on our platform quite valuable.

For those who like to invest in solid companies, Check it out free list of companies with strong balance sheets and high returns on equity.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

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 any stock 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 any of the stocks mentioned.

James V. Payne