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. 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 GDI Integrated Facility Services (TSE:GDI), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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 GDI Integrated Facility Services is:

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

0.065 = CA$58m ÷ (CA$1.3b - CA$388m) (Based on the trailing twelve months to September 2023).

Therefore, GDI Integrated Facility Services has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.6%.

See our latest analysis for GDI Integrated Facility Services  TSX:GDI Return on Capital Employed January 8th 2024

Above you can see how the current ROCE for GDI Integrated Facility Services 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 GDI Integrated Facility Services here for free.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at GDI Integrated Facility Services. The company has consistently earned 6.5% for the last five years, and the capital employed within the business has risen 117% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.



In Conclusion...

In conclusion, GDI Integrated Facility Services has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 80% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

GDI Integrated Facility Services does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

For those who like to invest in solid companies, check out this freelist 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.