To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at the ROCE trend of Sourcebio International (LON:SBI) we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
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. To calculate this metric for Sourcebio International, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.35 = UK£21m ÷ (UK£75m - UK£14m) (Based on the trailing twelve months to December 2021).
Therefore, Sourcebio International has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.
Check out our latest analysis for Sourcebio International
Above you can see how the current ROCE for Sourcebio International compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Does the ROCE Trend For Sourcebio International Tell Us?
We like the trends that we're seeing from Sourcebio International. Over the last one year, returns on capital employed have risen substantially to 35%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 38%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
In Conclusion...
All in all, it's terrific to see that Sourcebio International is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 26% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.
While Sourcebio International looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SBI is currently trading for a fair price.