Does Odessos Shiprepair Yard (BUL:5ODE) Have The Makings Of A Multi-Bagger?

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. So when we looked at Odessos Shiprepair Yard (BUL:5ODE) and its trend of ROCE, we really liked what we saw.

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

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. To calculate this metric for Odessos Shiprepair Yard, this is the formula:

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

0.14 = лв10m ÷ (лв79m - лв4.9m) (Based on the trailing twelve months to December 2020).

So, Odessos Shiprepair Yard has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.2% generated by the Infrastructure industry.

See our latest analysis for Odessos Shiprepair Yard

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Odessos Shiprepair Yard has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Odessos Shiprepair Yard's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last three years, the ROCE has climbed 220% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Odessos Shiprepair Yard's ROCE

As discussed above, Odessos Shiprepair Yard appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 31% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Odessos Shiprepair Yard does have some risks though, and we've spotted 2 warning signs for Odessos Shiprepair Yard that you might be interested in.

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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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.
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