Has Jungfraubahn Holding (VTX:JFN) Got What It Takes To Become A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Jungfraubahn Holding (VTX:JFN) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Jungfraubahn Holding:

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

0.037 = CHF26m ÷ (CHF756m - CHF61m) (Based on the trailing twelve months to June 2020).

So, Jungfraubahn Holding has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Transportation industry average of 6.9%.

View our latest analysis for Jungfraubahn Holding

Above you can see how the current ROCE for Jungfraubahn Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Jungfraubahn Holding's ROCE Trending?

In terms of Jungfraubahn Holding's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 8.0% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Key Takeaway

In summary, we're somewhat concerned by Jungfraubahn Holding's diminishing returns on increasing amounts of capital. Yet despite these concerning fundamentals, the stock has performed strongly with a 60% return over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Like most companies, Jungfraubahn Holding does come with some risks, and we've found 2 warning signs that you should be aware of.

While Jungfraubahn 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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