Balchem (NASDAQ:BCPC) Hasn't Managed To Accelerate Its Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. In light of that, when we looked at Balchem (NASDAQ:BCPC) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Balchem, this is the formula:

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

0.098 = US$146m ÷ (US$1.6b - US$142m) (Based on the trailing twelve months to September 2022).

So, Balchem has an ROCE of 9.8%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 12%.

Check out our latest analysis for Balchem

Above you can see how the current ROCE for Balchem 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 Balchem.

How Are Returns Trending?

In terms of Balchem's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.8% for the last five years, and the capital employed within the business has risen 72% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In conclusion, Balchem has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 55% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a separate note, we've found 1 warning sign for Balchem you'll probably want to know about.

While Balchem isn't earning the highest return, check out this free list of companies that are 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.