Baltic Classifieds Group (LON:BCG) Has Some Way To Go To Become A Multi-Bagger

If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. In light of that, when we looked at Baltic Classifieds Group (LON:BCG) and its ROCE trend, we weren’t exactly thrilled.

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. Analysts use this formula to calculate it for Baltic Classifieds Group:

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

0.059 = €24m ÷ (€420m – €11m) (Based on the trailing twelve months to October 2022).

So, Baltic Classifieds Group has an ROCE of 5.9%. In absolute terms, that’s a low return and it also under-performs the Interactive Media and Services industry average of 24%.

See our latest analysis for Baltic Classifieds Group

Above you can see how the current ROCE for Baltic Classifieds Group compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like, you can check out the forecasts from the analysts covering Baltic Classifieds Group here for free.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Baltic Classifieds Group, with its capital employed and returns on that capital staying somewhat the same for the last one year. It’s not uncommon to see this when looking at a mature and stable business that isn’t re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn’t expect Baltic Classifieds Group to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Baltic Classifieds Group has been paying out a decent 33% of its earnings to shareholders. Given the business isn’t reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line On Baltic Classifieds Group’s ROCE

In summary, Baltic Classifieds Group isn’t compounding its earnings but is generating stable returns on the same amount of capital employed. Additionally, the stock’s total return to shareholders over the last year has been flat, which isn’t too surprising. Therefore based on the analysis done in this article, we don’t think Baltic Classifieds Group has the makings of a multi-bagger.

If you want to continue researching Baltic Classifieds Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

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