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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Pebble Group (LON:PEBB), we don't think it's current trends fit the mold of a multi-bagger.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Pebble Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.081 = UK£7.9m ÷ (UK£128m - UK£31m) (Based on the trailing twelve months to December 2023).
Thus, Pebble Group has an ROCE of 8.1%. On its own, that's a low figure but it's around the 9.1% average generated by the Media industry.
Check out our latest analysis for Pebble Group
Above you can see how the current ROCE for Pebble 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 free analyst report for Pebble Group .
The Trend Of ROCE
On the surface, the trend of ROCE at Pebble Group doesn't inspire confidence. To be more specific, ROCE has fallen from 13% over the last five years. However it looks like Pebble Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.
The Bottom Line On Pebble Group's ROCE
Bringing it all together, while we're somewhat encouraged by Pebble Group's reinvestment in its own business, we're aware that returns are shrinking. And in the last three years, the stock has given away 57% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
If you're still interested in Pebble Group it's worth checking out our FREE intrinsic value approximation for PEBB to see if it's trading at an attractive price in other respects.