Sicily by Car (BIT:SBC) Will Be Hoping To Turn Its Returns On Capital Around

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. In light of that, when we looked at Sicily by Car (BIT:SBC) and its ROCE trend, we weren't exactly thrilled.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

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. The formula for this calculation on Sicily by Car is:

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

0.0046 = €891k ÷ (€267m - €74m) (Based on the trailing twelve months to December 2024).

Thus, Sicily by Car has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 7.1%.

Check out our latest analysis for Sicily by Car

In the above chart we have measured Sicily by Car'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 Sicily by Car .

What Can We Tell From Sicily by Car's ROCE Trend?

On the surface, the trend of ROCE at Sicily by Car doesn't inspire confidence. Around two years ago the returns on capital were 49%, but since then they've fallen to 0.5%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Sicily by Car's ROCE

Bringing it all together, while we're somewhat encouraged by Sicily by Car's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 55% over the last three years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Sicily by Car has the makings of a multi-bagger.

One more thing, we've spotted 2 warning signs facing Sicily by Car that you might find interesting.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.