Bubbles Intergroup (TLV:BBLS) Will Want To Turn Around Its Return Trends

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. However, after investigating Bubbles Intergroup (TLV:BBLS), we don't think it's current trends fit the mold of a multi-bagger.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. The formula for this calculation on Bubbles Intergroup is:

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

0.13 = ₪4.7m ÷ (₪75m - ₪38m) (Based on the trailing twelve months to December 2024).

Thus, Bubbles Intergroup has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 15% generated by the Software industry.

See our latest analysis for Bubbles Intergroup

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bubbles Intergroup's ROCE against it's prior returns. If you're interested in investigating Bubbles Intergroup's past further, check out this free graph covering Bubbles Intergroup's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Bubbles Intergroup's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 30% over the last three years. However it looks like Bubbles Intergroup might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

On a separate but related note, it's important to know that Bubbles Intergroup has a current liabilities to total assets ratio of 51%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Bubbles Intergroup's ROCE

Bringing it all together, while we're somewhat encouraged by Bubbles Intergroup's reinvestment in its own business, we're aware that returns are shrinking. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 96% over the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Bubbles Intergroup, we've discovered 2 warning signs that you should be aware of.

While Bubbles Intergroup 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.