Some investors may be concerned about Baikowski’s capital returns (EPA:ALBKK)
Did you know that there are financial metrics that can provide clues to a potential multi-bagger? Typically, we will want to notice a growth trend to return to on capital employed (ROCE) and at the same time, a based capital employed. This shows us that it is a compounding machine, capable of continuously reinvesting its profits back into the business and generating higher returns. In light of this, when we looked Baikowski (EPA:ALBKK) and its ROCE trend, we weren’t exactly thrilled.
Return on capital employed (ROCE): what is it?
If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. Analysts use this formula to calculate it for Baikowski:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.094 = €4.6m ÷ (€67m – €18m) (Based on the last twelve months to June 2021).
Thereby, Baikowski has a ROCE of 9.4%. In absolute terms, this is a low yield, but it is far better than the chemical industry average of 7.8%.
See our latest analysis for Baikowski
Although the past is not indicative of the future, it can be useful to know the historical performance of a company, which is why we have this graph above. If you want to see how Baikowski has performed in the past in other metrics, you can see this free chart of past profits, revenue and cash flow.
So what is Baikowski’s ROCE trend?
When we looked at the ROCE trend at Baikowski, we didn’t gain much confidence. Over the past four years, capital returns have declined to 9.4% from 13% four years ago. However, it looks like Baikowski could reinvest for long-term growth because while capital employed has increased, the company’s sales haven’t changed much over the past 12 months. It’s worth keeping an eye on the company’s earnings going forward to see if those investments end up contributing to the bottom line.
In summary, Baikowski is reinvesting funds into the business for growth, but unfortunately, it appears sales haven’t grown much yet. Considering the stock has gained an impressive 29% over the past three years, investors must be thinking there are better things to come. But if the trajectory of these underlying trends continues, we think the likelihood of it being a multi-bagger from here is not high.
One last note, you should inquire about the 3 warning signs we spotted some with Baikowski (including 1 which is a bit unpleasant).
For those who like to invest in solid companies, look at this free list of companies with strong balance sheets and high returns on equity.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.