B&M European Value Retail (LON:BME) Might Have The Makings Of A Multi-Bagger
There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at B&M European Value Retail (LON:BME) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for B&M European Value Retail:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = UK£536m ÷ (UK£3.6b - UK£824m) (Based on the trailing twelve months to March 2023).
Thus, B&M European Value Retail has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 7.7% generated by the Multiline Retail industry.
View our latest analysis for B&M European Value Retail
In the above chart we have measured B&M European Value Retail's 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 report for B&M European Value Retail.
The Trend Of ROCE
The trends we've noticed at B&M European Value Retail are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 70% more capital is being employed now too. So we're very much inspired by what we're seeing at B&M European Value Retail thanks to its ability to profitably reinvest capital.
Our Take On B&M European Value Retail's ROCE
All in all, it's terrific to see that B&M European Value Retail is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 107% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
Like most companies, B&M European Value Retail does come with some risks, and we've found 2 warning signs that you should be aware of.
While B&M European Value Retail isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
