BlueLinx Holdings (NYSE:BXC) Is Doing The Right Things To Multiply Its Share Price
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, BlueLinx Holdings (NYSE:BXC) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on BlueLinx Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$208m ÷ (US$1.6b - US$245m) (Based on the trailing twelve months to July 2023).
Therefore, BlueLinx Holdings has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Trade Distributors industry average of 14%.
View our latest analysis for BlueLinx Holdings
Above you can see how the current ROCE for BlueLinx Holdings 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 BlueLinx Holdings.
What Can We Tell From BlueLinx Holdings' ROCE Trend?
The trends we've noticed at BlueLinx Holdings are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 16%. The amount of capital employed has increased too, by 44%. So we're very much inspired by what we're seeing at BlueLinx Holdings thanks to its ability to profitably reinvest capital.
What We Can Learn From BlueLinx Holdings' ROCE
All in all, it's terrific to see that BlueLinx Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 154% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for BlueLinx Holdings (of which 1 can't be ignored!) that you should know about.
While BlueLinx Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
