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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Dierig Holding (ETR:DIE), we don't think it's current trends fit the mold of a multi-bagger.
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 Dierig Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.052 = €4.6m ÷ (€118m - €30m) (Based on the trailing twelve months to December 2023).
So, Dierig Holding has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Luxury industry average of 12%.
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.
How Are Returns Trending?
Things have been pretty stable at Dierig Holding, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're 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.
The Bottom Line On Dierig Holding's ROCE
In a nutshell, Dierig Holding has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 38% in the last five years. 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.
Like most companies, Dierig Holding does come with some risks, and we've found 3 warning signs that you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.