Shoe Carnival (NASDAQ:SCVL) knows how to allocate capital efficiently


If you’re looking for a multi-bagger, there are a few things to watch out for. Among other things, we will want to see two things; first, growth to return to on capital employed (ROCE) and on the other hand, an expansion of the quantity capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. And in light of that, the trends we see at shoe carnival (NASDAQ:SCVL) look very promising, so let’s take a look.

What is return on capital employed (ROCE)?

For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. To calculate this metric for Shoe Carnival, here is the formula:

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

0.31 = $196 million ÷ ($787 million – $162 million) (Based on the last twelve months to October 2021).

So, Shoe Carnival posted a ROCE of 31%. In absolute terms, that’s an excellent return and even better than the specialty retail industry average of 21%.

See our latest review for Shoe Carnival

NasdaqGS: return on capital employed SCVL January 24, 2022

Above, you can see how Shoe Carnival’s current ROCE compares to its past returns on capital, but you can’t tell much about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.

What is the return trend?

We love the trends we see from Shoe Carnival. Figures show that over the past five years, returns generated on capital employed have increased significantly to 31%. Basically, the business earns more per dollar of invested capital and on top of that, 64% more capital is also utilized now. Increasing returns on an increasing amount of capital are common among multi-baggers and that’s why we’re impressed.

What We Can Learn From Shoe Carnival’s ROCE

A business that increases its returns on capital and can constantly reinvest in itself is a highly sought after trait, and that’s what Shoe Carnival has. Given that the stock has returned a staggering 174% to shareholders over the past five years, it seems investors recognize these changes. That being said, we still think the promising fundamentals mean the company merits further due diligence.

Like most businesses, Shoe Carnival involves some risk, and we’ve found 1 warning sign of which you should be aware.

Shoe Carnival isn’t the only stock generating high returns. If you want to see more, check out our free list of companies with high returns on equity with strong fundamentals.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.


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