Investors Met With Slowing Returns on Capital At Vetropack Holding (VTX:VETN)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Although, when we looked at Vetropack Holding (VTX:VETN), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Vetropack Holding is:

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

0.096 = CHF91m ÷ (CHF1.2b - CHF284m) (Based on the trailing twelve months to December 2022).

Therefore, Vetropack Holding has an ROCE of 9.6%. Ultimately, that's a low return and it under-performs the Packaging industry average of 12%.

Check out our latest analysis for Vetropack Holding

In the above chart we have measured Vetropack Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Vetropack Holding.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Vetropack Holding, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Vetropack Holding doesn't end up being a multi-bagger in a few years time.

The Bottom Line

In a nutshell, Vetropack Holding has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 12% 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 want to continue researching Vetropack Holding, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Vetropack Holding 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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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.