To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Wizz Air Holdings (LON:WIZZ) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Wizz Air Holdings:

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

0.013 = €85m ÷ (€9.2b - €2.8b) (Based on the trailing twelve months to December 2024).

So, Wizz Air Holdings has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Airlines industry average of 10.0%.

See our latest analysis for Wizz Air Holdings

Above you can see how the current ROCE for Wizz Air Holdings 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 analyst report for Wizz Air Holdings .

The Trend Of ROCE

In terms of Wizz Air Holdings' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.3% from 12% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Wizz Air Holdings' ROCE

Bringing it all together, while we're somewhat encouraged by Wizz Air Holdings' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 70% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Wizz Air Holdings does have some risks though, and we've spotted 2 warning signs for Wizz Air Holdings that you might be interested in.