Here's What To Make Of Bucher Industries' (VTX:BUCN) Decelerating Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. In light of that, when we looked at Bucher Industries (VTX:BUCN) and its ROCE trend, we weren't exactly thrilled.

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 Bucher Industries:

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

0.18 = CHF345m ÷ (CHF3.0b - CHF1.0b) (Based on the trailing twelve months to June 2024).

Thus, Bucher Industries has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 15% generated by the Machinery industry.

See our latest analysis for Bucher Industries

Above you can see how the current ROCE for Bucher Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bucher Industries for free.

What Does the ROCE Trend For Bucher Industries Tell Us?

Over the past five years, Bucher Industries' 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. With that in mind, unless investment picks up again in the future, we wouldn't expect Bucher Industries to be a multi-bagger going forward. This probably explains why Bucher Industries is paying out 55% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

Our Take On Bucher Industries' ROCE

We can conclude that in regards to Bucher Industries' returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 43% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we found 2 warning signs for Bucher Industries (1 is potentially serious) you should be aware of.

While Bucher Industries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.