Stock Analysis

Chocoladefabriken Lindt & Sprüngli (VTX:LISN) Has Some Way To Go To Become A Multi-Bagger

SWX:LISN
Source: Shutterstock

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Chocoladefabriken Lindt & Sprüngli's (VTX:LISN) trend of ROCE, we liked what we saw.

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 Chocoladefabriken Lindt & Sprüngli is:

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

0.11 = CHF695m ÷ (CHF7.7b - CHF1.3b) (Based on the trailing twelve months to June 2022).

Therefore, Chocoladefabriken Lindt & Sprüngli has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Food industry average of 12%.

Our analysis indicates that LISN is potentially overvalued!

roce
SWX:LISN Return on Capital Employed November 10th 2022

Above you can see how the current ROCE for Chocoladefabriken Lindt & Sprüngli compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Chocoladefabriken Lindt & Sprüngli.

So How Is Chocoladefabriken Lindt & Sprüngli's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 23% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Chocoladefabriken Lindt & Sprüngli has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

In the end, Chocoladefabriken Lindt & Sprüngli has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you're still interested in Chocoladefabriken Lindt & Sprüngli it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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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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.

About SWX:LISN

Chocoladefabriken Lindt & Sprüngli

Engages in the manufacture and sale of chocolate products worldwide.

Excellent balance sheet with proven track record.

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