Returns On Capital At BlueLinx Holdings (NYSE:BXC) Have Hit The Brakes

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at BlueLinx Holdings (NYSE:BXC) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for BlueLinx Holdings, this is the formula:

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

0.045 = US$60m ÷ (US$1.6b - US$243m) (Based on the trailing twelve months to June 2025).

Therefore, BlueLinx Holdings has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 11%.

Check out our latest analysis for BlueLinx Holdings

In the above chart we have measured BlueLinx Holdings' 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 BlueLinx Holdings .

What Does the ROCE Trend For BlueLinx Holdings Tell Us?

The returns on capital haven't changed much for BlueLinx Holdings in recent years. The company has consistently earned 4.5% for the last five years, and the capital employed within the business has risen 68% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On BlueLinx Holdings' ROCE

In conclusion, BlueLinx Holdings has been investing more capital into the business, but returns on that capital haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 331% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing to note, we've identified 1 warning sign with BlueLinx Holdings and understanding it should be part of your investment process.

While BlueLinx Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.