Stock Analysis

Capital Allocation Trends At Concrete Pumping Holdings (NASDAQ:BBCP) Aren't Ideal

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NasdaqCM:BBCP
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Concrete Pumping Holdings (NASDAQ:BBCP), we don't think it's current trends fit the mold of a multi-bagger.

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 Concrete Pumping Holdings:

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

0.044 = US$32m ÷ (US$782m - US$43m) (Based on the trailing twelve months to July 2021).

Thus, Concrete Pumping Holdings has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Construction industry average of 9.7%.

Check out our latest analysis for Concrete Pumping Holdings

roce
NasdaqCM:BBCP Return on Capital Employed September 25th 2021

In the above chart we have measured Concrete Pumping Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Concrete Pumping Holdings.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Concrete Pumping Holdings doesn't inspire confidence. Around four years ago the returns on capital were 15%, but since then they've fallen to 4.4%. 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 may take some time before the company starts to see any change in earnings from these investments.

On a side note, Concrete Pumping Holdings has done well to pay down its current liabilities to 5.5% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On Concrete Pumping Holdings' ROCE

Bringing it all together, while we're somewhat encouraged by Concrete Pumping Holdings' reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 14% in the last three years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

While Concrete Pumping Holdings doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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What are the risks and opportunities for Concrete Pumping Holdings?

Concrete Pumping Holdings, Inc. provides concrete pumping and waste management services in the United States and the United Kingdom.

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Rewards

  • Price-To-Earnings ratio (16.9x) is below the Construction industry average (24.4x)

  • Earnings are forecast to grow 12.27% per year

  • Became profitable this year

Risks

  • Interest payments are not well covered by earnings

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Concrete Pumping Holdings

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