Yahoo Finance Has Cracker Barrel Old Country Store (NASDAQ:CBRL) Got What It Takes To Become A Multi-Bagger?
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Cracker Barrel Old Country Store (NASDAQ:CBRL), 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. The formula for this calculation on Cracker Barrel Old Country Store is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.088 = US$166m ÷ (US$2.2b - US$353m) (Based on the trailing twelve months to May 2020).
Thus, Cracker Barrel Old Country Store has an ROCE of 8.8%. In absolute terms, that's a low return but it's around the Hospitality industry average of 7.4%.
Check out our latest analysis for Cracker Barrel Old Country Store
In the above chart we have a measured Cracker Barrel Old Country Store's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
In terms of Cracker Barrel Old Country Store's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 21% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
The Bottom Line On Cracker Barrel Old Country Store's ROCE
To conclude, we've found that Cracker Barrel Old Country Store is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 16% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
On a separate note, we've found 4 warning signs for Cracker Barrel Old Country Store you'll probably want to know about.
While Cracker Barrel Old Country Store may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
This article by Simply Wall St is general in nature. 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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