Return Trends At Landis+Gyr Group (VTX:LAND) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. 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?

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. To calculate this metric for Landis+Gyr Group, this is the formula:

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

0.074 = US$149m ÷ (US$2.5b - US$499m) (Based on the trailing twelve months to September 2024).

So, Landis+Gyr Group has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 13%.

See 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 for free.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Landis+Gyr Group, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Landis+Gyr Group to be a multi-bagger going forward. This probably explains why Landis+Gyr Group is paying out 46% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

The Bottom Line On Landis+Gyr Group's ROCE

We can conclude that in regards to Landis+Gyr Group's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 24% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing to note, we've identified 1 warning sign with Landis+Gyr Group and understanding it should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.