If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at BJ's Restaurants (NASDAQ:BJRI), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on BJ's Restaurants is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.011 = US$9.7m ÷ (US$1.0b - US$190m) (Based on the trailing twelve months to April 2023).

Thus, BJ's Restaurants has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.1%.

View our latest analysis for BJ's Restaurants

Above you can see how the current ROCE for BJ's Restaurants compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for BJ's Restaurants.

So How Is BJ's Restaurants' ROCE Trending?

In terms of BJ's Restaurants' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.1% from 8.5% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that BJ's Restaurants is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 42% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Like most companies, BJ's Restaurants does come with some risks, and we've found 1 warning sign that you should be aware of.