Buzzi Unicem (BIT:BZU) Is Experiencing Growth In Returns On Capital

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Buzzi Unicem (BIT:BZU) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for Buzzi Unicem:

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

0.096 = €565m ÷ (€6.5b - €543m) (Based on the trailing twelve months to June 2021).

Thus, Buzzi Unicem has an ROCE of 9.6%. In absolute terms, that's a low return but it's around the Basic Materials industry average of 11%.

See our latest analysis for Buzzi Unicem

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

What Can We Tell From Buzzi Unicem's ROCE Trend?

Buzzi Unicem 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 five years, the ROCE has climbed 62% 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Buzzi Unicem's ROCE

To sum it up, Buzzi Unicem is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 22% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

While Buzzi Unicem looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BZU is currently trading for a fair price.

While Buzzi Unicem isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.