U.S. Markets open in 1 hr 55 mins
  • Gold

    1,781.00
    +10.50 (+0.59%)
     
  • EUR/USD

    1.1635
    -0.0003 (-0.0233%)
     
  • 10-Yr Bond

    1.6350
    0.0000 (0.00%)
     
  • Vix

    15.63
    -0.68 (-4.17%)
     
  • GBP/USD

    1.3754
    -0.0040 (-0.2875%)
     
  • USD/JPY

    114.3850
    +0.0250 (+0.0219%)
     
  • BTC-USD

    63,835.46
    +1,626.98 (+2.62%)
     
  • CMC Crypto 200

    1,481.19
    +17.83 (+1.22%)
     
  • FTSE 100

    7,222.38
    +4.85 (+0.07%)
     
  • Nikkei 225

    29,255.55
    +40.03 (+0.14%)
     

The Return Trends At BlueScope Steel (ASX:BSL) Look Promising

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So when we looked at BlueScope Steel (ASX:BSL) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on BlueScope Steel is:

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

0.083 = AU$738m ÷ (AU$11b - AU$2.4b) (Based on the trailing twelve months to December 2020).

Thus, BlueScope Steel has an ROCE of 8.3%. On its own, that's a low figure but it's around the 9.5% average generated by the Metals and Mining industry.

See our latest analysis for BlueScope Steel

roce
roce

In the above chart we have measured BlueScope Steel'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 BlueScope Steel.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 8.3%. Basically the business is earning more per dollar of capital invested and in addition to that, 36% more capital is being employed now too. So we're very much inspired by what we're seeing at BlueScope Steel thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that BlueScope Steel can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 214% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 3 warning signs with BlueScope Steel and understanding these should be part of your investment process.

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.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.