Slowing Rates Of Return At HELLA GmbH KGaA (ETR:HLE) Leave Little Room For Excitement

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at HELLA GmbH KGaA (ETR:HLE) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for HELLA GmbH KGaA:

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

0.089 = €424m ÷ (€7.5b - €2.7b) (Based on the trailing twelve months to June 2024).

So, HELLA GmbH KGaA has an ROCE of 8.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.6%.

Check out our latest analysis for HELLA GmbH KGaA

Above you can see how the current ROCE for HELLA GmbH KGaA compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for HELLA GmbH KGaA .

How Are Returns Trending?

Over the past five years, HELLA GmbH KGaA's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect HELLA GmbH KGaA to be a multi-bagger going forward.

Our Take On HELLA GmbH KGaA's ROCE

We can conclude that in regards to HELLA GmbH KGaA's returns on capital employed and the trends, there isn't much change to report on. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 132% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

HELLA GmbH KGaA could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for HLE on our platform quite valuable.

While HELLA GmbH KGaA may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.