Did you know that there are some financial metrics that can provide clues about a potential multi-bagger? Among other things, we want to see two things; firstly, a growing one return on the capital employed (ROCE) and secondly an expansion of the company’s success Crowd of the capital employed. Ultimately, this shows that this is a company that reinvests profits at increasing returns. Against this background, the ROCE of Ulta Beauty (NASDAQ:ULTA) looks great, so let’s see what the trend tells us.

Just to clarify in case you’re not sure, ROCE is a measure used to evaluate how much pre-tax income (as a percentage) a company generates from the capital invested in its business. The formula for this calculation on Ulta Beauty is:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.38 = $1.6 billion ÷ ($6.0 billion – $1.8 billion) (Based on the last twelve months ending November 2024).

Therefore, Ulta Beauty has an ROCE of 38%. That’s a fantastic return, and what’s more, it exceeds the average of 13% achieved by companies in a similar industry.

Check out our latest analysis for Ulta Beauty

In the chart above, we measured Ulta Beauty’s past ROCE compared to its previous performance, but the future is arguably more important. If you are interested, you can see the analyst forecasts in our free Analyst report for Ulta Beauty.

Ulta Beauty is promising as ROCE tends to trend up and to the right. More specifically, while the company has kept capital employed relatively constant over the past five years, ROCE has increased by 55% over the same period. Therefore, it is likely that the company is now reaping the full benefits of its previous investments since the capital employed has not changed significantly. However, it’s worth elaborating on this because while it’s great that the company is more efficient, it could also mean a lack of areas to invest in internally for organic growth in the future.

All in all, Ulta Beauty has done well to increase returns on capital employed. And investors seem to expect more of the same in the future, as the stock has rewarded shareholders with a return of 71% over the last five years. Given that the stock is showing promising trends, it’s worth further researching the company to see if these trends are likely to continue.

Like most companies, Ulta Beauty comes with some risks, and that’s what we’ve discovered 1 warning sign what you should be aware of.

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