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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at HelloFresh (ETR:HFG) and its trend of ROCE, we really liked what we saw.
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. The formula for this calculation on HelloFresh is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0016 = €2.6m ÷ (€2.6b - €976m) (Based on the trailing twelve months to December 2024).
Thus, HelloFresh has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 11%.
Check out our latest analysis for HelloFresh
Above you can see how the current ROCE for HelloFresh 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 HelloFresh .
What Does the ROCE Trend For HelloFresh Tell Us?
We're delighted to see that HelloFresh is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 0.2% which is a sight for sore eyes. In addition to that, HelloFresh is employing 365% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Bottom Line On HelloFresh's ROCE
To the delight of most shareholders, HelloFresh has now broken into profitability. However the stock is down a substantial 74% in the last five years so there could be other areas of the business hurting its prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.
If you'd like to know about the risks facing HelloFresh, we've discovered 1 warning sign that you should be aware of.
While HelloFresh isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.