We're Watching These Trends At Huber+Suhner (VTX:HUBN)

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Huber+Suhner (VTX:HUBN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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)

0.097 = CHF58m ÷ (CHF732m - CHF137m) (Based on the trailing twelve months to June 2020).

So, Huber+Suhner has an ROCE of 9.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 10%.

Check out our latest analysis for Huber+Suhner

Above you can see how the current ROCE for Huber+Suhner 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 Huber+Suhner here for free.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Huber+Suhner, with its capital employed and returns on that capital staying somewhat the same for the last 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 Huber+Suhner in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why Huber+Suhner is paying out 49% 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.

The Key Takeaway

In a nutshell, Huber+Suhner has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 92% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Huber+Suhner does have some risks though, and we've spotted 1 warning sign for Huber+Suhner that you might be interested in.

While Huber+Suhner 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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