We Think B&M European Value Retail (LON:BME) Might Have The DNA Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at B&M European Value Retail's (LON:BME) look very promising so lets take a look.

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 B&M European Value Retail:

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

0.21 = UK£610m ÷ (UK£3.6b - UK£755m) (Based on the trailing twelve months to March 2022).

Thus, B&M European Value Retail has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Multiline Retail industry average of 17%.

View our latest analysis for B&M European Value Retail

In the above chart we have measured B&M European Value Retail's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering B&M European Value Retail here for free.

What Does the ROCE Trend For B&M European Value Retail Tell Us?

Investors would be pleased with what's happening at B&M European Value Retail. Over the last five years, returns on capital employed have risen substantially to 21%. The amount of capital employed has increased too, by 95%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On B&M European Value Retail's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what B&M European Value Retail has. And with a respectable 59% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about B&M European Value Retail, we've spotted 3 warning signs, and 1 of them doesn't sit too well with us.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.