Here's What To Make Of Landis+Gyr Group's (VTX:LAND) Decelerating Rates Of Return

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Landis+Gyr Group (VTX:LAND) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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 Landis+Gyr Group:

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

0.022 = US$36m ÷ (US$2.2b - US$519m) (Based on the trailing twelve months to March 2021).

Therefore, Landis+Gyr Group has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 14%.

Check out our latest analysis for Landis+Gyr Group

In the above chart we have measured Landis+Gyr Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Landis+Gyr Group here for free.

What Does the ROCE Trend For Landis+Gyr Group Tell Us?

We're a bit concerned with the trends, because the business is applying 29% less capital than it was five years ago and returns on that capital have stayed flat. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

The Bottom Line On Landis+Gyr Group's ROCE

Overall, we're not ecstatic to see Landis+Gyr Group reducing the amount of capital it employs in the business. And investors may be recognizing these trends since the stock has only returned a total of 17% to shareholders over the last three years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a separate note, we've found 1 warning sign for Landis+Gyr Group you'll probably want to know about.

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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.
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