We Like These Underlying Return On Capital Trends At HelloFresh (ETR:HFG)

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, HelloFresh (ETR:HFG) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for HelloFresh, this is the formula:

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

0.097 = €164m ÷ (€2.6b - €861m) (Based on the trailing twelve months to June 2023).

So, HelloFresh has an ROCE of 9.7%. On its own, that's a low figure but it's around the 11% average generated by the Consumer Retailing industry.

See our latest analysis for HelloFresh

In the above chart we have measured HelloFresh'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 HelloFresh here for free.

What Can We Tell From HelloFresh's ROCE Trend?

HelloFresh has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 9.7% on its capital. And unsurprisingly, like most companies trying to break into the black, HelloFresh is utilizing 450% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

In summary, it's great to see that HelloFresh has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 192% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if HelloFresh can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing HelloFresh we've found 3 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

While HelloFresh 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.