Flughafen Zürich (VTX:FHZN) Has Some Way To Go To Become A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Although, when we looked at Flughafen Zürich (VTX:FHZN), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

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 Flughafen Zürich, this is the formula:

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

0.089 = CHF412m ÷ (CHF5.0b - CHF369m) (Based on the trailing twelve months to June 2024).

Thus, Flughafen Zürich has an ROCE of 8.9%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 12%.

Check out our latest analysis for Flughafen Zürich

In the above chart we have measured Flughafen Zürich'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 Flughafen Zürich for free.

What Can We Tell From Flughafen Zürich's ROCE Trend?

There hasn't been much to report for Flughafen Zürich's returns and its level of capital employed because both metrics have been steady for the past 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 Flughafen Zürich doesn't end up being a multi-bagger in a few years time. This probably explains why Flughafen Zürich is paying out 52% 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.

What We Can Learn From Flughafen Zürich's ROCE

In summary, Flughafen Zürich isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly, the stock has only gained 30% 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.

Like most companies, Flughafen Zürich does come with some risks, and we've found 1 warning sign that you should be aware of.

While Flughafen Zürich 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.