Returns At Huber+Suhner (VTX:HUBN) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Huber+Suhner's (VTX:HUBN) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Huber+Suhner:

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

0.17 = CHF107m ÷ (CHF812m - CHF178m) (Based on the trailing twelve months to June 2022).

So, Huber+Suhner has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 16% generated by the Electrical industry.

View our latest analysis for Huber+Suhner

In the above chart we have measured Huber+Suhner'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 Huber+Suhner.

So How Is Huber+Suhner's ROCE Trending?

Huber+Suhner is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 79% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

In summary, we're delighted to see that Huber+Suhner has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 60% return over the last five years. In light of that, we think it's worth looking further into this stock because if Huber+Suhner can keep these trends up, it could have a bright future ahead.

If you want to continue researching Huber+Suhner, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Huber+Suhner 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.