Is CALIDA Holding (VTX:CALN) Likely To Turn Things Around?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at CALIDA Holding (VTX:CALN), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on CALIDA Holding is:

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

0.097 = CHF22m ÷ (CHF356m - CHF135m) (Based on the trailing twelve months to June 2020).

Therefore, CALIDA Holding has an ROCE of 9.7%. On its own that's a low return, but compared to the average of 8.1% generated by the Luxury industry, it's much better.

View our latest analysis for CALIDA Holding

Above you can see how the current ROCE for CALIDA Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

There hasn't been much to report for CALIDA Holding's returns and its level of capital employed because both metrics have been steady for the past 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 CALIDA Holding doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that CALIDA Holding has been paying out a decent 57% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

In Conclusion...

In summary, CALIDA Holding isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors may be recognizing these trends since the stock has only returned a total of 4.9% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

CALIDA Holding does have some risks though, and we've spotted 3 warning signs for CALIDA Holding that you might be interested in.

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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