Has Brim hf (ICE:BRIM) Got What It Takes To Become A Multi-Bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Brim hf (ICE:BRIM) and its ROCE trend, we weren't exactly thrilled.

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 Brim hf, this is the formula:

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

0.063 = €42m ÷ (€777m - €112m) (Based on the trailing twelve months to September 2020).

Thus, Brim hf has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Food industry average of 8.2%.

See our latest analysis for Brim hf

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

So How Is Brim hf's ROCE Trending?

When we looked at the ROCE trend at Brim hf, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 6.3% from 13% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that Brim hf is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 41% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

Brim hf does have some risks, we noticed 4 warning signs (and 2 which don't sit too well with us) we think you should know about.

While Brim hf 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.

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This article by Simply Wall St is general in nature. 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.
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