- United States
- Consumer Durables
We Think Green Brick Partners (NYSE:GRBK) Might Have The DNA Of A Multi-Bagger
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. With that in mind, the ROCE of Green Brick Partners (NYSE:GRBK) looks great, so lets see what the trend can tell us.
Understanding 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 Green Brick Partners:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.25 = US$365m ÷ (US$1.7b - US$204m) (Based on the trailing twelve months to September 2022).
Thus, Green Brick Partners has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 17%.
View our latest analysis for Green Brick Partners
Above you can see how the current ROCE for Green Brick Partners compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Green Brick Partners.
So How Is Green Brick Partners' ROCE Trending?
We like the trends that we're seeing from Green Brick Partners. Over the last five years, returns on capital employed have risen substantially to 25%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 164%. So we're very much inspired by what we're seeing at Green Brick Partners thanks to its ability to profitably reinvest capital.
The Key Takeaway
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Green Brick Partners has. And a remarkable 197% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a separate note, we've found 1 warning sign for Green Brick Partners you'll probably want to know about.
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.
Green Brick Partners
Green Brick Partners, Inc. operates as a homebuilding and land development company in the United States.
Outstanding track record and undervalued.