The Return Trends At Buzzi (BIT:BZU) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Buzzi (BIT:BZU) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Buzzi:

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

0.15 = €995m ÷ (€7.6b - €842m) (Based on the trailing twelve months to December 2023).

Thus, Buzzi has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 9.9% it's much better.

View our latest analysis for Buzzi

In the above chart we have measured Buzzi'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 Buzzi for free.

What Does the ROCE Trend For Buzzi Tell Us?

The trends we've noticed at Buzzi are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 38%. So we're very much inspired by what we're seeing at Buzzi thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Buzzi is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Buzzi can keep these trends up, it could have a bright future ahead.

Buzzi does have some risks though, and we've spotted 1 warning sign for Buzzi that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.