EMS-CHEMIE HOLDING (VTX:EMSN) Has More To Do To Multiply In Value Going Forward

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So while EMS-CHEMIE HOLDING (VTX:EMSN) has a high ROCE right now, lets see what we can decipher from how returns are changing.

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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. The formula for this calculation on EMS-CHEMIE HOLDING is:

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

0.27 = CHF540m ÷ (CHF2.2b - CHF241m) (Based on the trailing twelve months to December 2024).

Thus, EMS-CHEMIE HOLDING has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 9.9% earned by companies in a similar industry.

Check out our latest analysis for EMS-CHEMIE HOLDING

Above you can see how the current ROCE for EMS-CHEMIE 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 analyst report for EMS-CHEMIE HOLDING .

So How Is EMS-CHEMIE HOLDING's ROCE Trending?

Over the past five years, EMS-CHEMIE HOLDING's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. Although current returns are high, we'd need more evidence of underlying growth for it to look like a multi-bagger going forward. That probably explains why EMS-CHEMIE HOLDING has been paying out 87% of its earnings as dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line

Although is allocating it's capital efficiently to generate impressive returns, it isn't compounding its base of capital, which is what we'd see from a multi-bagger. Unsurprisingly, the stock has only gained 1.8% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing EMS-CHEMIE HOLDING, we've discovered 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.