If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in BJ's Wholesale Club Holdings' (NYSE:BJ) returns on capital, so let's have a look.

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Understanding 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. To calculate this metric for BJ's Wholesale Club Holdings, this is the formula:

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

0.17 = US$781m ÷ (US$7.1b - US$2.5b) (Based on the trailing twelve months to February 2025).

Thus, BJ's Wholesale Club Holdings has an ROCE of 17%.  In absolute terms, that's a satisfactory return, but compared to the Consumer Retailing industry average of 11% it's much better.

View our latest analysis for BJ's Wholesale Club Holdings NYSE:BJ Return on Capital Employed May 19th 2025

In the above chart we have measured BJ's Wholesale Club Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering BJ's Wholesale Club Holdings  for free.

The Trend Of ROCE

Investors would be pleased with what's happening at BJ's Wholesale Club Holdings. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 31% more capital is being employed now too. So we're very much inspired by what we're seeing at BJ's Wholesale Club Holdings thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, BJ's Wholesale Club Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Story Continues

If you'd like to know about the risks facing BJ's Wholesale Club Holdings, we've discovered 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this freelist of companies with solid balance sheets and high returns on equity.

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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.

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