To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That’s why when we briefly looked at BBB Foods’ (NYSE:TBBB) ROCE trend, we were pretty happy with what we saw.
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If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for BBB Foods, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.11 = Mex$1.3b ÷ (Mex$24b – Mex$12b) (Based on the trailing twelve months to March 2025).
Thus, BBB Foods has an ROCE of 11%. That’s a pretty standard return and it’s in line with the industry average of 11%.
See our latest analysis for BBB Foods
In the above chart we have measured BBB Foods’ prior ROCE against its prior performance, but the future is arguably more important. If you’re interested, you can view the analysts predictions in our free analyst report for BBB Foods .
The trend of ROCE doesn’t stand out much, but returns on a whole are decent. Over the past three years, ROCE has remained relatively flat at around 11% and the business has deployed 245% more capital into its operations. Since 11% is a moderate ROCE though, it’s good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
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On a side note, BBB Foods has done well to reduce current liabilities to 49% of total assets over the last three years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 49%, some of that risk is still prevalent.
The main thing to remember is that BBB Foods has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So even though the stock might be more “expensive” than it was before, we think the strong fundamentals warrant this stock for further research.
If you’re still interested in BBB Foods it’s worth checking out our FREE intrinsic value approximation for TBBB to see if it’s trading at an attractive price in other respects.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.