In This Article:
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Having said that, from a first glance at Dierig Holding (ETR:DIE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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. To calculate this metric for Dierig Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.054 = €4.7m ÷ (€113m - €27m) (Based on the trailing twelve months to June 2023).
Therefore, Dierig Holding has an ROCE of 5.4%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 15%.
See our latest analysis for Dierig Holding
Historical performance is a great place to start when researching a stock so above you can see the gauge for Dierig Holding's ROCE against it's prior returns. If you'd like to look at how Dierig Holding has performed in the past in other metrics, you can view this free graph of Dierig Holding's past earnings, revenue and cash flow.
What Can We Tell From Dierig Holding's ROCE Trend?
Over the past five years, Dierig Holding's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Dierig Holding doesn't end up being a multi-bagger in a few years time.
In Conclusion...
In summary, Dierig Holding isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 41% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
If you want to know some of the risks facing Dierig Holding we've found 4 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.