Returns At Vetropack Holding (VTX:VETN) Appear To Be Weighed Down

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Vetropack Holding (VTX:VETN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Vetropack Holding, this is the formula:

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

0.091 = CHF76m ÷ (CHF992m - CHF152m) (Based on the trailing twelve months to December 2020).

Thus, Vetropack Holding has an ROCE of 9.1%. In absolute terms, that's a low return and it also 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Vetropack Holding. The company has employed 28% more capital in the last five years, and the returns on that capital have remained stable at 9.1%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In summary, Vetropack Holding has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 122% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Vetropack Holding does have some risks though, and we've spotted 1 warning sign for Vetropack Holding that you might be interested in.

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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