Shareholders Are Optimistic That BWX Technologies (NYSE:BWXT) Will Multiply In Value

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So, when we ran our eye over BWX Technologies' (NYSE:BWXT) 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 BWX Technologies:

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

0.20 = US$402m ÷ (US$2.5b - US$460m) (Based on the trailing twelve months to December 2021).

Thus, BWX Technologies has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 8.3% earned by companies in a similar industry.

See our latest analysis for BWX Technologies

In the above chart we have measured BWX Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering BWX Technologies here for free.

What Does the ROCE Trend For BWX Technologies Tell Us?

BWX Technologies deserves to be commended in regards to it's returns. The company has consistently earned 20% for the last five years, and the capital employed within the business has risen 79% in that time. Now considering ROCE is an attractive 20%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If BWX Technologies can keep this up, we'd be very optimistic about its future.

The Bottom Line

In summary, we're delighted to see that BWX Technologies has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. In light of this, the stock has only gained 20% over the last five years for shareholders who have owned the stock in this period. So to determine if BWX Technologies is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

One more thing, we've spotted 3 warning signs facing BWX Technologies that you might find interesting.

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.