Blue Island's (CSE:BLUE) Returns On Capital Are Heading Higher

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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.

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. Analysts use this formula to calculate it for Blue Island:

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

0.00083 = €16k ÷ (€22m - €3.8m) (Based on the trailing twelve months to June 2021).

So, Blue Island has an ROCE of 0.08%. Ultimately, that's a low return and it under-performs the Food industry average of 9.4%.

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're interested in investigating Blue Island's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Blue Island has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 0.08% on its capital. And unsurprisingly, like most companies trying to break into the black, Blue Island is utilizing 30% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On Blue Island's ROCE

Overall, Blue Island gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a staggering 195% 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.

One more thing: We've identified 5 warning signs with Blue Island (at least 1 which is significant) , and understanding them would certainly be useful.

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.

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.

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