Yahoo Finance Returns on Capital Paint A Bright Future For Olaplex Holdings (NASDAQ:OLPX)
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Olaplex Holdings' (NASDAQ:OLPX) look very promising so lets take a look.
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 Olaplex Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.27 = US$414m ÷ (US$1.6b - US$87m) (Based on the trailing twelve months to June 2022).
Therefore, Olaplex Holdings has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 18% earned by companies in a similar industry.
View our latest analysis for Olaplex Holdings
In the above chart we have measured Olaplex Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From Olaplex Holdings' ROCE Trend?
The trends we've noticed at Olaplex Holdings are quite reassuring. The numbers show that in the last two years, the returns generated on capital employed have grown considerably to 27%. The amount of capital employed has increased too, by 138%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
What We Can Learn From Olaplex Holdings' ROCE
To sum it up, Olaplex Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Given the stock has declined 61% in the last year, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
Like most companies, Olaplex Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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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