- LIVE QUOTES
- LEARN
- HELP
Nasdaq
Wall Street JournalEN
Torrid Holdings (NYSE:CURV) Shareholders Will Want The ROCE Trajectory To Continue
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Torrid Holdings (NYSE:CURV) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Torrid Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$30m ÷ (US$403m - US$233m) (Based on the trailing twelve months to November 2025).
So, Torrid Holdings has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 13% generated by the Specialty Retail industry.
View our latest analysis for Torrid Holdings
Above you can see how the current ROCE for Torrid Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Torrid Holdings .
How Are Returns Trending?
Torrid Holdings has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 27%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Torrid Holdings appears to been achieving more with less, since the business is using 58% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 58% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.
What We Can Learn From Torrid Holdings' ROCE
In summary, it's great to see that Torrid Holdings has been able to turn things around and earn higher returns on lower amounts of capital. Given the stock has declined 69% in the last three years, 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.
If you want to know some of the risks facing Torrid Holdings we've found 4 warning signs (3 can't be ignored!) that you should be aware of before investing here.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.