If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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 Bapcor (ASX:BAP), 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. The formula for this calculation on Bapcor is:

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

0.10 = AU$178m ÷ (AU$2.1b - AU$380m) (Based on the trailing twelve months to June 2023).

So, Bapcor has an ROCE of 10%.  That's a relatively normal return on capital, and it's around the 8.9% generated by the Retail Distributors industry.

See our latest analysis for Bapcor  roce

Above you can see how the current ROCE for Bapcor 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 freereport for Bapcor.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Bapcor, we didn't gain much confidence. To be more specific, ROCE has fallen from 13% over the last five years. However it looks like Bapcor 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 Key Takeaway

To conclude, we've found that Bapcor is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 2.8% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.



Like most companies, Bapcor does come with some risks, and we've found 1 warning sign that you should be aware of.

While Bapcor isn't earning the highest return, check out this freelist of companies that are earning high returns on equity with solid balance sheets.

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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.