NV Bekaert's (EBR:BEKB) Returns Have Hit A Wall

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. In light of that, when we looked at NV Bekaert (EBR:BEKB) and its ROCE trend, we weren't exactly thrilled.

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 NV Bekaert:

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

0.10 = €276m ÷ (€4.3b - €1.6b) (Based on the trailing twelve months to December 2020).

Thus, NV Bekaert has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 9.3%.

Check out our latest analysis for NV Bekaert

Above you can see how the current ROCE for NV Bekaert compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering NV Bekaert here for free.

What Does the ROCE Trend For NV Bekaert Tell Us?

Over the past five years, NV Bekaert's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect NV Bekaert to be a multi-bagger going forward.

The Key Takeaway

In summary, NV Bekaert isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors may be recognizing these trends since the stock has only returned a total of 6.6% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a separate note, we've found 2 warning signs for NV Bekaert you'll probably want to know about.

While NV Bekaert 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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