Stock Analysis

The Returns At BEST (WSE:BST) Provide Us With Signs Of What's To Come

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WSE:BST
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. In light of that, when we looked at BEST (WSE:BST) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for BEST, this is the formula:

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

0.073 = zł60m ÷ (zł1.2b - zł347m) (Based on the trailing twelve months to September 2020).

Thus, BEST has an ROCE of 7.3%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 13%.

Check out our latest analysis for BEST

roce
WSE:BST Return on Capital Employed December 8th 2020

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

What The Trend Of ROCE Can Tell Us

In terms of BEST's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.3% from 17% five years ago. 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.

What We Can Learn From BEST's ROCE

In summary, BEST is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly, the stock has only gained 26% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we've found 2 warning signs for BEST that we think you should be aware of.

While BEST 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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