Return Trends At Concrete Pumping Holdings (NASDAQ:BBCP) Aren't Appealing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Concrete Pumping Holdings (NASDAQ:BBCP) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for Concrete Pumping Holdings, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.069 = US$56m ÷ (US$895m - US$72m) (Based on the trailing twelve months to January 2024).

So, Concrete Pumping Holdings has an ROCE of 6.9%. Ultimately, that's a low return and it under-performs the Construction industry average of 12%.

View our latest analysis for Concrete Pumping Holdings

roce

In the above chart we have measured Concrete Pumping Holdings' 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 Concrete Pumping Holdings for free.

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Concrete Pumping Holdings. The company has consistently earned 6.9% for the last five years, and the capital employed within the business has risen 23% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Concrete Pumping Holdings' ROCE

In summary, Concrete Pumping Holdings has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 7.3% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing: We've identified 2 warning signs with Concrete Pumping Holdings (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.