B&M European Value Retail (LON:BME) Has More To Do To Multiply In Value Going Forward

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at B&M European Value Retail (LON:BME), it didn't seem to tick all of these boxes.

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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 B&M European Value Retail is:

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

0.17 = UK£493m ÷ (UK£4.0b - UK£1.0b) (Based on the trailing twelve months to September 2025).

So, B&M European Value Retail has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 15% generated by the Multiline Retail industry.

Check out our latest analysis for B&M European Value Retail

Above you can see how the current ROCE for B&M European Value Retail 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 free analyst report for B&M European Value Retail .

How Are Returns Trending?

There hasn't been much to report for B&M European Value Retail's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if B&M European Value Retail doesn't end up being a multi-bagger in a few years time. This probably explains why B&M European Value Retail is paying out 42% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

In Conclusion...

In summary, B&M European Value Retail isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 56% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think B&M European Value Retail has the makings of a multi-bagger.

If you want to continue researching B&M European Value Retail, you might be interested to know about the 3 warning signs that our analysis has discovered.

While B&M European Value Retail may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.