Shareholders Are Optimistic That Brunello Cucinelli (BIT:BC) Will Multiply In Value

There are a few key trends to look for if we want to identify the next multi-bagger. 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. So, when we ran our eye over Brunello Cucinelli's (BIT:BC) trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Brunello Cucinelli, this is the formula:

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

0.21 = €198m ÷ (€1.4b - €424m) (Based on the trailing twelve months to December 2023).

Thus, Brunello Cucinelli has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Luxury industry average of 13%.

View our latest analysis for Brunello Cucinelli

In the above chart we have measured Brunello Cucinelli's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Brunello Cucinelli .

The Trend Of ROCE

It's hard not to be impressed by Brunello Cucinelli's returns on capital. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 189% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Brunello Cucinelli can keep this up, we'd be very optimistic about its future.

Our Take On Brunello Cucinelli's ROCE

In short, we'd argue Brunello Cucinelli has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 243% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for BC on our platform that is definitely worth checking out.

Brunello Cucinelli is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.