Blue Island (CSE:BLUE) Is Doing The Right Things To Multiply Its Share Price

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Blue Island (CSE:BLUE) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Blue Island is:

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

0.057 = €1.0m ÷ (€22m - €3.6m) (Based on the trailing twelve months to December 2021).

Therefore, Blue Island has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.2%.

Check out our latest analysis for Blue Island

Historical performance is a great place to start when researching a stock so above you can see the gauge for Blue Island's ROCE against it's prior returns. If you'd like to look at how Blue Island has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.7%. The amount of capital employed has increased too, by 25%. 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

All in all, it's terrific to see that Blue Island is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 165% 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 Blue Island can keep these trends up, it could have a bright future ahead.

On a final note, we found 4 warning signs for Blue Island (2 are significant) you should be aware of.

While Blue Island isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.