The Trends At Boyd Group Services (TSE:BYD) That You Should Know About

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Boyd Group Services (TSE:BYD) 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. The formula for this calculation on Boyd Group Services is:

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

0.073 = CA$121m ÷ (CA$2.0b - CA$394m) (Based on the trailing twelve months to September 2020).

Thus, Boyd Group Services has an ROCE of 7.3%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 8.3%.

See our latest analysis for Boyd Group Services

In the above chart we have measured Boyd Group Services' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Boyd Group Services here for free.

The Trend Of ROCE

Unfortunately, the trend isn't great with ROCE falling from 15% five years ago, while capital employed has grown 288%. That being said, Boyd Group Services raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Boyd Group Services' earnings and if they change as a result from the capital raise.

In Conclusion...

In summary, Boyd Group Services is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 271% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know about the risks facing Boyd Group Services, we've discovered 3 warning signs that you should be aware of.

While Boyd Group Services may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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