The Return Trends At Beam Communications Holdings (ASX:BCC) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 on that note, Beam Communications Holdings (ASX:BCC) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Beam Communications Holdings is:

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

0.025 = AU$443k ÷ (AU$24m - AU$6.5m) (Based on the trailing twelve months to December 2021).

Therefore, Beam Communications Holdings has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 7.0%.

Check out our latest analysis for Beam Communications Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Beam Communications Holdings' ROCE against it's prior returns. If you're interested in investigating Beam Communications Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The fact that Beam Communications Holdings is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.5% on its capital. Not only that, but the company is utilizing 134% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On Beam Communications Holdings' ROCE

Long story short, we're delighted to see that Beam Communications Holdings' reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Beam Communications Holdings does come with some risks, and we've found 4 warning signs that you should be aware of.

While Beam Communications Holdings 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.