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There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. That's why when we briefly looked at Badger Infrastructure Solutions' (TSE:BDGI) ROCE trend, we were pretty happy with what we saw.
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. The formula for this calculation on Badger Infrastructure Solutions is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$86m ÷ (US$669m - US$145m) (Based on the trailing twelve months to December 2024).
Thus, Badger Infrastructure Solutions has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 13% generated by the Construction industry.
View our latest analysis for Badger Infrastructure Solutions
In the above chart we have measured Badger Infrastructure Solutions' 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 Badger Infrastructure Solutions for free.
How Are Returns Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 27% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Bottom Line On Badger Infrastructure Solutions' ROCE
The main thing to remember is that Badger Infrastructure Solutions has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Badger Infrastructure Solutions does have some risks though, and we've spotted 2 warning signs for Badger Infrastructure Solutions that you might be interested in.