The Trends At BG Agro AD (BUL:BGAG) That You Should Know About

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Having said that, from a first glance at BG Agro AD (BUL:BGAG) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

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 BG Agro AD, this is the formula:

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

0.0069 = лв580k ÷ (лв133m - лв49m) (Based on the trailing twelve months to September 2020).

Thus, BG Agro AD has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 8.2%.

See our latest analysis for BG Agro AD

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

The Trend Of ROCE

On the surface, the trend of ROCE at BG Agro AD doesn't inspire confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 0.7%. However it looks like BG Agro AD might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by BG Agro AD's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 46% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 3 warning signs for BG Agro AD (2 don't sit too well with us) you should be aware of.

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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