Carter’s (NYSE: CRI) Capital Investment Trends Look Strong
If you are looking for a multi-bagger, there are a few things to look out for. First, we will want to see a to return to on capital employed (ROCE) which increases and, on the other hand, a based capital employed. This shows us that it is a composing machine, capable of continually reinvesting its profits in the business and generating higher returns. Therefore, when we briefly examined Carter’s (NYSE: CRI) Trend ROCE, we were very happy with what we saw.
What is Return on Employee Capital (ROCE)?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. The formula for this calculation on Carter is:
Return on capital employed = Profit before interest and taxes (EBIT) Ã· (Total assets – Current liabilities)
0.21 = $ 548 million Ã· ($ 3.3 billion – $ 674 million) (Based on the last twelve months up to October 2021).
Thereby, Carter’s has a ROCE of 21%. This is a fantastic return and not only that, it exceeds the 14% average earned by companies in a similar industry.
NYSE: CRI Return on Capital Employee December 17, 2021
Above you can see how Carter’s current ROCE compares to its previous returns on capital, but there is not much you can say about the past. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.
What is the trend for returns?
Carter’s deserves to be congratulated on their returns. Over the past five years, ROCE has remained relatively stable at around 21% and the company has deployed 58% additional capital in its operations. Now that the ROCE is attractive at 21%, this combination is actually quite attractive because it means that the company can constantly put money in to work and generate those high returns. You will see this by looking at well run companies or favorable business models.
In short, we would say that Carter’s has the makings of a multi-bagger since it has been able to compose its capital at very profitable rates of return. However, over the past five years, the stock has offered only a 29% return to shareholders who held it during that time. So, due to the trends we’re seeing, we recommend that you take a closer look at this stock to see if it has the makings of a multi-bagger.
One more thing, we spotted 1 warning sign facing Carter’s that you might find interesting.
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.
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