To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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.

What Is 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)

0.18 = US$821m ÷ (US$7.2b - US$2.7b) (Based on the trailing twelve months to November 2024).

So, BJ's Wholesale Club Holdings has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Consumer Retailing industry.

See our latest analysis for BJ's Wholesale Club Holdings

Above you can see how the current ROCE for BJ's Wholesale Club Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for BJ's Wholesale Club Holdings .

The Trend Of ROCE

The trends we've noticed at BJ's Wholesale Club Holdings are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 31% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

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 a remarkable 307% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

BJ's Wholesale Club Holdings does have some risks though, and we've spotted 1 warning sign for BJ's Wholesale Club Holdings that you might be interested in.

While BJ's Wholesale Club Holdings 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.