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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. In light of that, when we looked at MYT Netherlands Parent B.V (NYSE:MYTE) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What is it?
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 MYT Netherlands Parent B.V is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.011 = €4.8m ÷ (€570m - €129m) (Based on the trailing twelve months to March 2022).
Thus, MYT Netherlands Parent B.V has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 19%.
View our latest analysis for MYT Netherlands Parent B.V
In the above chart we have measured MYT Netherlands Parent B.V's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for MYT Netherlands Parent B.V.
How Are Returns Trending?
On the surface, the trend of ROCE at MYT Netherlands Parent B.V doesn't inspire confidence. Around three years ago the returns on capital were 7.6%, but since then they've fallen to 1.1%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
Our Take On MYT Netherlands Parent B.V's ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for MYT Netherlands Parent B.V. These growth trends haven't led to growth returns though, since the stock has fallen 62% over the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
If you want to continue researching MYT Netherlands Parent B.V, you might be interested to know about the 1 warning sign that our analysis has discovered.