2 weeks Ago By Simply Wall St.
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing on capital employed (ROCE) and secondly, an increasing 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. In light of that, when we looked at ( ) and its ROCE trend, we weren't exactly thrilled.
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Breville Group: 0.18 = AU$183m ÷ (AU$1.
3b - AU$338m) . Therefore, In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Durables industry average of 17%. Above you can see how the current ROCE for Breville Group 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 . In terms of Breville Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 18% from 26% five years ago.
On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments. Bringing it all together, while we're somewhat encouraged by Breville Group's reinvestment in its own business, we're aware that returns are shrinking.
Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 130% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high. Breville Group does have some risks though, and we've spotted that you might be interested in.
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