Park & Bellheimer (FRA:PKB) Has Some Way To Go To Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Park & Bellheimer (FRA:PKB) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Park & Bellheimer:

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

0.022 = €510k ÷ (€33m - €9.6m) (Based on the trailing twelve months to December 2021).

Therefore, Park & Bellheimer has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 6.4%.

View our latest analysis for Park & Bellheimer

Historical performance is a great place to start when researching a stock so above you can see the gauge for Park & Bellheimer's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Park & Bellheimer, check out these free graphs here.

So How Is Park & Bellheimer's ROCE Trending?

In terms of Park & Bellheimer's historical ROCE trend, it doesn't exactly demand attention. The company has employed 30% more capital in the last five years, and the returns on that capital have remained stable at 2.2%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 29% of total assets, this reported ROCE would probably be less than2.2% because total capital employed would be higher.The 2.2% ROCE could be even lower if current liabilities weren't 29% of total assets, because the the formula would show a larger base of total capital employed. With that in mind, just be wary if this ratio increases in the future, because if it gets particularly high, this brings with it some new elements of risk.

The Bottom Line On Park & Bellheimer's ROCE

As we've seen above, Park & Bellheimer's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 3.2% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Park & Bellheimer does have some risks though, and we've spotted 2 warning signs for Park & Bellheimer that you might be interested in.

While Park & Bellheimer 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.