Yahoo Finance 1-800-FLOWERS.COM (NASDAQ:FLWS) Could Be Struggling To Allocate Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating 1-800-FLOWERS.COM (NASDAQ:FLWS), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on 1-800-FLOWERS.COM is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.035 = US$29m ÷ (US$1.0b - US$210m) (Based on the trailing twelve months to March 2024).
So, 1-800-FLOWERS.COM has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 12%.
View our latest analysis for 1-800-FLOWERS.COM
In the above chart we have measured 1-800-FLOWERS.COM's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for 1-800-FLOWERS.COM .
What Does the ROCE Trend For 1-800-FLOWERS.COM Tell Us?
On the surface, the trend of ROCE at 1-800-FLOWERS.COM doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.5% from 9.8% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.
In Conclusion...
From the above analysis, we find it rather worrisome that returns on capital and sales for 1-800-FLOWERS.COM have fallen, meanwhile the business is employing more capital than it was five years ago. It should come as no surprise then that the stock has fallen 50% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
If you're still interested in 1-800-FLOWERS.COM it's worth checking out our FREE intrinsic value approximation for FLWS to see if it's trading at an attractive price in other respects.
For those who like to invest in solid companies, check out this free list 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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