GDI Integrated Facility Services (TSE:GDI) Might Have The Makings Of A Multi-Bagger

By
Simply Wall St
Published
April 08, 2022
TSX:GDI
Source: Shutterstock

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at GDI Integrated Facility Services (TSE:GDI) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on GDI Integrated Facility Services is:

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

0.10 = CA$75m ÷ (CA$1.1b - CA$357m) (Based on the trailing twelve months to December 2021).

Thus, GDI Integrated Facility Services has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 6.1% it's much better.

Check out our latest analysis for GDI Integrated Facility Services

roce
TSX:GDI Return on Capital Employed April 8th 2022

In the above chart we have measured GDI Integrated Facility Services' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for GDI Integrated Facility Services.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from GDI Integrated Facility Services. The data shows that returns on capital have increased substantially over the last five years to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 105% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

To sum it up, GDI Integrated Facility Services has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 205% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if GDI Integrated Facility Services can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for GDI Integrated Facility Services that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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