There are some key trends we need to look out for when identifying the next multi-bagger. Ideally, a company will exhibit two trends: first, a growing return on the capital employed (ROCE) and secondly an increasing Crowd of the capital employed. When you see this, it usually means that it is a company with a great business model and numerous profitable reinvestment opportunities. However, after a quick look at the numbers, we do not believe CBIZ (NYSE:CBZ) has the potential to be a multi-bagger in the future, but let’s take a look at why that might be the case.
What is return on capital employed (ROCE)?
For those who aren’t sure what ROCE is, it measures the amount of pre-tax profit a company can generate from the capital employed in its business. Analysts use this formula to calculate it for CBIZ:
Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)
0.095 = $161 million ÷ ($2.2 billion – $468 million) (Based on the last twelve months to June 2024).
So, CBIZ has a ROCE of 9.5%. In absolute terms, this is a low return and it is also below the professional services industry average of 14%.
Check out our latest analysis for CBIZ
You can see above how the current ROCE for CBIZ compares to previous returns on capital, but there is only so much that can be said from the past. If you want to know what analysts are forecasting for the future, you should check out our free analyst report for CBIZ.
What can we learn from CBIZ’s ROCE trend?
There are better returns on capital than what we see at CBIZ. Over the past five years, ROCE has remained relatively stable at around 9.5% and the company has invested 61% more capital in its operations. Given that the company has increased the amount of capital employed, the investments being made simply do not seem to offer a high return on capital.
Our assessment of CBIZ’s ROCE
As we saw above, CBIZ’s returns on capital have not been increasing, but the company is investing in the business. Investors must believe that better things are yet to come, as the stock has exceeded all expectations and delivered a 208% gain to shareholders who have held over the past five years. However, unless these underlying trends continue to be positive, we should not get our hopes up too much.
If you would like to explore CBIZ further, you may be interested in the 1 warning sign This is what our analysis has shown.
While CBIZ may not have the highest returns right now, we have compiled a list of companies that are currently generating more than 25% return on equity. Check it out free List here.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
