Returns On Capital Signal Tricky Times Ahead For Concrete Pumping Holdings (NASDAQ:BBCP)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Concrete Pumping Holdings (NASDAQ:BBCP), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Concrete Pumping Holdings is:

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

0.051 = US$38m ÷ (US$806m - US$61m) (Based on the trailing twelve months to January 2022).

Thus, Concrete Pumping Holdings has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Construction industry average of 8.3%.

See our latest analysis for Concrete Pumping Holdings

Above you can see how the current ROCE for Concrete Pumping Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Concrete Pumping Holdings here for free.

The Trend Of ROCE

When we looked at the ROCE trend at Concrete Pumping Holdings, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.1% from 15% 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 may take some time before the company starts to see any change in earnings from these investments.

Our Take On Concrete Pumping Holdings' ROCE

In summary, Concrete Pumping Holdings is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last three years, the stock has given away 12% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Concrete Pumping Holdings has the makings of a multi-bagger.

If you'd like to know about the risks facing Concrete Pumping Holdings, we've discovered 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.