GDI Integrated Facility Services (TSE:GDI) Has More To Do To Multiply In Value Going Forward
To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at GDI Integrated Facility Services (TSE:GDI), it didn't seem to tick all of these boxes.
What Is 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 GDI Integrated Facility Services:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.078 = CA$67m ÷ (CA$1.3b - CA$394m) (Based on the trailing twelve months to March 2023).
So, GDI Integrated Facility Services has an ROCE of 7.8%. Even though it's in line with the industry average of 7.8%, it's still a low return by itself.
See our latest analysis for GDI Integrated Facility Services
In the above chart we have measured GDI Integrated Facility Services' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From GDI Integrated Facility Services' ROCE Trend?
The returns on capital haven't changed much for GDI Integrated Facility Services in recent years. Over the past five years, ROCE has remained relatively flat at around 7.8% and the business has deployed 141% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
Our Take On GDI Integrated Facility Services' ROCE
In summary, GDI Integrated Facility Services has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 187% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
One more thing: We've identified 2 warning signs with GDI Integrated Facility Services (at least 1 which is concerning) , and understanding them would certainly be useful.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
