If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Floor & Decor Holdings (NYSE:FND) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Floor & Decor Holdings:

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

0.065 = US$249m ÷ (US$5.1b - US$1.2b) (Based on the trailing twelve months to December 2024).

So, Floor & Decor Holdings has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 13%.

Check out our latest analysis for Floor & Decor Holdings

Above you can see how the current ROCE for Floor & Decor Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Floor & Decor Holdings for free.

The Trend Of ROCE

On the surface, the trend of ROCE at Floor & Decor Holdings doesn't inspire confidence. To be more specific, ROCE has fallen from 9.2% 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Floor & Decor Holdings' ROCE

In summary, Floor & Decor Holdings is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 134% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Floor & Decor Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for FND on our platform quite valuable.

While Floor & Decor 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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