Biglari Holdings (NYSE:BH.A) Might Have The Makings Of A Multi-Bagger
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. 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 Biglari Holdings (NYSE:BH.A) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
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. Analysts use this formula to calculate it for Biglari Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.067 = US$48m ÷ (US$862m - US$146m) (Based on the trailing twelve months to September 2022).
Thus, Biglari Holdings has an ROCE of 6.7%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 11%.
See our latest analysis for Biglari Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Biglari Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Biglari Holdings, check out these free graphs here.
What Does the ROCE Trend For Biglari Holdings Tell Us?
We're pretty happy with how the ROCE has been trending at Biglari Holdings. We found that the returns on capital employed over the last five years have risen by 514%. The company is now earning US$0.07 per dollar of capital employed. In regards to capital employed, Biglari Holdings appears to been achieving more with less, since the business is using 21% less capital to run its operation. Biglari Holdings may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
The Key Takeaway
In a nutshell, we're pleased to see that Biglari Holdings has been able to generate higher returns from less capital. Since the stock has returned a solid 39% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Biglari Holdings can keep these trends up, it could have a bright future ahead.
On a final note, we've found 1 warning sign for Biglari Holdings that we think you should be aware of.
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.
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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.
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