Slowing Rates Of Return At Brisbane Broncos (ASX:BBL) Leave Little Room For Excitement

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Brisbane Broncos (ASX:BBL) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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 Brisbane Broncos, this is the formula:

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

0.11 = AU$4.7m ÷ (AU$57m - AU$15m) (Based on the trailing twelve months to June 2022).

So, Brisbane Broncos has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

Check out our latest analysis for Brisbane Broncos

Historical performance is a great place to start when researching a stock so above you can see the gauge for Brisbane Broncos' ROCE against it's prior returns. If you'd like to look at how Brisbane Broncos has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Brisbane Broncos' ROCE Trend?

There hasn't been much to report for Brisbane Broncos' returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Brisbane Broncos to be a multi-bagger going forward.

The Key Takeaway

In summary, Brisbane Broncos isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 104% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to know some of the risks facing Brisbane Broncos we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While Brisbane Broncos 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.