Linz Textil Holding's (VIE:LTH) Returns Have Hit A Wall

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. However, after briefly looking over the numbers, we don't think Linz Textil Holding (VIE:LTH) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

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 Linz Textil Holding, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.039 = €3.1m ÷ (€93m - €14m) (Based on the trailing twelve months to December 2022).

So, Linz Textil Holding has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Luxury industry average of 13%.

View our latest analysis for Linz Textil Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for Linz Textil Holding's ROCE against it's prior returns. If you're interested in investigating Linz Textil Holding's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Linz Textil Holding'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. So unless we see a substantial change at Linz Textil Holding in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line On Linz Textil Holding's ROCE

We can conclude that in regards to Linz Textil Holding's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 28% over the last five years, investors may not be too optimistic on this trend improving either. 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.

Linz Textil Holding does come with some risks though, we found 5 warning signs in our investment analysis, and 2 of those are potentially serious...

While Linz Textil Holding 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.