To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Although, when we looked at V-ZUG Holding (VTX:VZUG), it didn't seem to tick all of these boxes.
What Is Return On Capital Employed (ROCE)?
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 V-ZUG Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.024 = CHF12m ÷ (CHF606m - CHF124m) (Based on the trailing twelve months to June 2023).
Therefore, V-ZUG Holding has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 10%.
See our latest analysis for V-ZUG Holding
Above you can see how the current ROCE for V-ZUG Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Does the ROCE Trend For V-ZUG Holding Tell Us?
When we looked at the ROCE trend at V-ZUG Holding, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.4% from 20% five years ago. However it looks like V-ZUG Holding might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.
The Bottom Line On V-ZUG Holding's ROCE
In summary, V-ZUG Holding is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 19% in the last three years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
Like most companies, V-ZUG Holding does come with some risks, and we've found 2 warning signs that you should be aware of.