Columbia sportswear

Columbia Sportswear (NASDAQ: COLM) Returns Not Growing


If you are looking for a multi-bagger, there are a few things to look out for. Ideally, a business will display two trends; first growth to return to on capital employed (ROCE) and on the other hand, an increase quantity capital employed. Ultimately, this demonstrates that this is a company that is reinvesting its profits at increasing rates of return. So when we looked through our eyes Columbia Sportswear (NASDAQ: COLM) ROCE trend, we liked what we saw.

Understanding Return on Capital Employed (ROCE)

For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. The formula for this calculation on Columbia Sportswear is:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.18 = $ 409 million ÷ ($ 2.9 billion – $ 591 million) (Based on the last twelve months up to September 2021).

Thereby, Columbia Sportswear has a ROCE of 18%. In absolute terms, it’s a decent return, but compared to the luxury industry average of 14%, it’s much better.

NasdaqGS: COLM Return on capital employed on November 7, 2021

In the graph above, we’ve measured Columbia Sportswear’s past ROCE versus past performance, but arguably the future is more important. If you are interested, you can view analyst forecasts in our free business analyst forecast report.

What is the trend for returns?

While current returns on capital are decent, they haven’t changed much. Over the past five years, ROCE has remained relatively stable at around 18% and the company has deployed 45% more capital in its operations. Considering that 18% is moderate ROCE, it’s good to see that a company can keep reinvesting at these decent rates of return. Over long periods of time, returns like these may not be very exciting, but with consistency, they can be profitable in terms of stock price performance.

In conclusion…

The main thing to remember is that Columbia Sportswear has proven its ability to continually reinvest at respectable rates of return. So it’s no surprise that shareholders got a respectable 86% return if they owned in the past five years. So while the stock may be “more expensive” than it was before, we believe that the strong fundamentals warrant further research into this stock.

One more thing, we spotted 1 warning sign facing Columbia Sportswear that you might find interesting.

While Columbia Sportswear doesn’t generate the highest return, check out this free list of companies that generate high returns on equity with strong balance sheets.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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