Stock Analysis

Bilfinger (ETR:GBF) Might Have The Makings Of A Multi-Bagger

XTRA:GBF
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Bilfinger (ETR:GBF) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Bilfinger, this is the formula:

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

0.051 = €103m ÷ (€3.2b - €1.2b) (Based on the trailing twelve months to March 2022).

So, Bilfinger has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 7.8%.

Check out our latest analysis for Bilfinger

roce
XTRA:GBF Return on Capital Employed May 30th 2022

In the above chart we have measured Bilfinger's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Bilfinger has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 5.1% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Bilfinger has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In Conclusion...

In summary, we're delighted to see that Bilfinger has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 13% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Bilfinger does have some risks though, and we've spotted 3 warning signs for Bilfinger that you might be interested in.

While Bilfinger 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.

Valuation is complex, but we're helping make it simple.

Find out whether Bilfinger is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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.