Orzel Bialy (WSE:OBL) Might Have The Makings Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Orzel Bialy (WSE:OBL) so let's look a bit deeper.

What is 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. Analysts use this formula to calculate it for Orzel Bialy:

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

0.19 = zł78m ÷ (zł469m - zł60m) (Based on the trailing twelve months to September 2021).

Thus, Orzel Bialy has an ROCE of 19%. That's a relatively normal return on capital, and it's around the 17% generated by the Commercial Services industry.

Check out our latest analysis for Orzel Bialy

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

What Does the ROCE Trend For Orzel Bialy Tell Us?

We're delighted to see that Orzel Bialy is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 19% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Orzel Bialy is utilizing 43% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Orzel Bialy has decreased current liabilities to 13% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Orzel Bialy's ROCE

To the delight of most shareholders, Orzel Bialy has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Orzel Bialy we've found 3 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Orzel Bialy 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.