The Returns At HELMA Eigenheimbau (ETR:H5E) Provide Us With Signs Of What's To Come

There are a few key trends to look for if we want to identify the next multi-bagger. 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 HELMA Eigenheimbau (ETR:H5E) and its ROCE trend, we weren't exactly thrilled.

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. To calculate this metric for HELMA Eigenheimbau, this is the formula:

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

0.073 = €22m ÷ (€402m - €104m) (Based on the trailing twelve months to June 2020).

Thus, HELMA Eigenheimbau has an ROCE of 7.3%. On its own, that's a low figure but it's around the 8.5% average generated by the Consumer Durables industry.

See our latest analysis for HELMA Eigenheimbau

Above you can see how the current ROCE for HELMA Eigenheimbau 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 HELMA Eigenheimbau's ROCE Trending?

When we looked at the ROCE trend at HELMA Eigenheimbau, we didn't gain much confidence. To be more specific, ROCE has fallen from 12% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by HELMA Eigenheimbau's reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 12% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

HELMA Eigenheimbau does have some risks, we noticed 2 warning signs (and 1 which can't be ignored) we think you should know about.

While HELMA Eigenheimbau 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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