Yahoo Finance Investors Will Want Beam Communications Holdings' (ASX:BCC) Growth In ROCE To Persist
To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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, we've noticed some promising trends at Beam Communications Holdings (ASX:BCC) so let's look a bit deeper.
Return On Capital Employed (ROCE): What is it?
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 Beam Communications Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.025 = AU$443k ÷ (AU$24m - AU$6.5m) (Based on the trailing twelve months to December 2021).
Thus, Beam Communications Holdings has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 7.0%.
See our latest analysis for Beam Communications Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Beam Communications Holdings' ROCE against it's prior returns. If you're interested in investigating Beam Communications Holdings' past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
We're delighted to see that Beam Communications Holdings is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 2.5% which is a sight for sore eyes. Not only that, but the company is utilizing 134% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Key Takeaway
In summary, it's great to see that Beam Communications Holdings has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you'd like to know about the risks facing Beam Communications Holdings, we've discovered 4 warning signs that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
