Why You Should Care About Bloober Team's (WSE:BLO) Strong 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Bloober Team's (WSE:BLO) trend of ROCE, we really liked what we saw.

What is 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 Bloober Team:

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

0.32 = zł22m ÷ (zł85m - zł16m) (Based on the trailing twelve months to September 2021).

Thus, Bloober Team has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Entertainment industry average of 24%.

View our latest analysis for Bloober Team

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Bloober Team, check out these free graphs here.

How Are Returns Trending?

We'd be pretty happy with returns on capital like Bloober Team. Over the past five years, ROCE has remained relatively flat at around 32% and the business has deployed 179% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Bloober Team can keep this up, we'd be very optimistic about its future.

Our Take On Bloober Team's ROCE

In short, we'd argue Bloober Team has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Therefore it's no surprise that shareholders have earned a respectable 92% return if they held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Bloober Team does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit concerning...

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.