Stock Analysis

Will Villars Holding (VTX:VILN) Multiply In Value Going Forward?

SWX:VILN
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at Villars Holding (VTX:VILN) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Villars Holding:

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

0.012 = CHF1.2m ÷ (CHF110m - CHF8.0m) (Based on the trailing twelve months to June 2020).

So, Villars Holding has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 9.0%.

View our latest analysis for Villars Holding

roce
SWX:VILN Return on Capital Employed February 2nd 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Villars Holding's ROCE against it's prior returns. If you'd like to look at how Villars Holding has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

On the surface, the trend of ROCE at Villars Holding doesn't inspire confidence. To be more specific, ROCE has fallen from 2.5% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On Villars Holding's ROCE

In summary, we're somewhat concerned by Villars Holding's diminishing returns on increasing amounts of capital. However the stock has delivered a 63% return to shareholders over the last five years, so investors might be expecting the trends to turn around. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Villars Holding does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is potentially serious...

While Villars Holding 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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Valuation is complex, but we're helping make it simple.

Find out whether Villars Holding is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. 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.
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