Yahoo Finance BCE (TSE:BCE) Has Some Way To Go To Become 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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at BCE (TSE:BCE) and its ROCE trend, we weren't exactly thrilled.
Understanding 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. To calculate this metric for BCE, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.093 = CA$5.6b ÷ (CA$73b - CA$13b) (Based on the trailing twelve months to March 2024).
So, BCE has an ROCE of 9.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.9%.
View our latest analysis for BCE
In the above chart we have measured BCE's 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 BCE for free.
What Does the ROCE Trend For BCE Tell Us?
In terms of BCE's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.3% for the last five years, and the capital employed within the business has risen 22% 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.
Our Take On BCE's ROCE
In summary, BCE has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 1.6% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
BCE does have some risks, we noticed 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.
While BCE 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.
