Returns On Capital At Hoftex Group (MUN:NBH) Have Hit The Brakes

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Hoftex Group (MUN:NBH), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Hoftex Group is:

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

0.027 = €4.2m ÷ (€177m - €19m) (Based on the trailing twelve months to December 2020).

Thus, Hoftex Group has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Luxury industry average of 7.6%.

Check out our latest analysis for Hoftex Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hoftex Group's ROCE against it's prior returns. If you're interested in investigating Hoftex Group's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Hoftex Group's ROCE Trending?

Over the past five years, Hoftex Group's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Hoftex Group to be a multi-bagger going forward.

The Bottom Line

We can conclude that in regards to Hoftex Group's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 27% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Hoftex Group (of which 1 is concerning!) that you should know about.

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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