Should We Be Excited About The Trends Of Returns At WASGAU Produktions & Handels (FRA:MSH)?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating WASGAU Produktions & Handels (FRA:MSH), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on WASGAU Produktions & Handels is:

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

0.037 = €9.5m ÷ (€323m - €65m) (Based on the trailing twelve months to June 2020).

So, WASGAU Produktions & Handels has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 8.5%.

Check out our latest analysis for WASGAU Produktions & Handels

Historical performance is a great place to start when researching a stock so above you can see the gauge for WASGAU Produktions & Handels' ROCE against it's prior returns. If you'd like to look at how WASGAU Produktions & Handels has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From WASGAU Produktions & Handels' ROCE Trend?

There are better returns on capital out there than what we're seeing at WASGAU Produktions & Handels. The company has employed 79% more capital in the last five years, and the returns on that capital have remained stable at 3.7%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On WASGAU Produktions & Handels' ROCE

In summary, WASGAU Produktions & Handels has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 57% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One final note, you should learn about the 3 warning signs we've spotted with WASGAU Produktions & Handels (including 2 which can't be ignored) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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