Returns On Capital Are A Standout For Bubbles Intergroup (TLV:BBLS)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Bubbles Intergroup's (TLV:BBLS) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Bubbles Intergroup, this is the formula:

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

0.20 = ₪8.3m ÷ (₪76m - ₪35m) (Based on the trailing twelve months to June 2024).

Therefore, Bubbles Intergroup has an ROCE of 20%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

See our latest analysis for Bubbles Intergroup

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Bubbles Intergroup has performed in the past in other metrics, you can view this free graph of Bubbles Intergroup's past earnings, revenue and cash flow.

How Are Returns Trending?

Bubbles Intergroup is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last one year, the ROCE has climbed 56% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Another thing to note, Bubbles Intergroup has a high ratio of current liabilities to total assets of 46%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

To bring it all together, Bubbles Intergroup has done well to increase the returns it's generating from its capital employed. Although the company may be facing some issues elsewhere since the stock has plunged 88% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

Bubbles Intergroup does have some risks, we noticed 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.