Does Hyrican Informationssysteme (FRA:HYI) Have The Makings Of A Multi-Bagger?

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Hyrican Informationssysteme (FRA:HYI) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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 Hyrican Informationssysteme:

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

0.044 = €1.2m ÷ (€33m - €6.6m) (Based on the trailing twelve months to December 2019).

Therefore, Hyrican Informationssysteme has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 7.9%.

See our latest analysis for Hyrican Informationssysteme

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

What Does the ROCE Trend For Hyrican Informationssysteme Tell Us?

While there are companies with higher returns on capital out there, we still find the trend at Hyrican Informationssysteme promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 51% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

As discussed above, Hyrican Informationssysteme appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Astute investors may have an opportunity here because the stock has declined 25% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

On a separate note, we've found 3 warning signs for Hyrican Informationssysteme you'll probably want to 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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This article by Simply Wall St is general in nature. 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.
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