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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Hain Celestial Group (NASDAQ:HAIN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Hain Celestial Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.043 = US$87m ÷ (US$2.3b - US$231m) (Based on the trailing twelve months to June 2023).
So, Hain Celestial Group has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Food industry average of 11%.
View our latest analysis for Hain Celestial Group
Above you can see how the current ROCE for Hain Celestial Group 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 Hain Celestial Group here for free.
What Can We Tell From Hain Celestial Group's ROCE Trend?
There hasn't been much to report for Hain Celestial Group's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Hain Celestial Group to be a multi-bagger going forward.
What We Can Learn From Hain Celestial Group's ROCE
In a nutshell, Hain Celestial Group has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 65% 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.
On a separate note, we've found 1 warning sign for Hain Celestial Group you'll probably want to know about.