Has Hamburger Hafen und Logistik (ETR:HHFA) Got What It Takes To Become A Multi-Bagger?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Hamburger Hafen und Logistik (ETR:HHFA), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Hamburger Hafen und Logistik is:

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

0.056 = €128m ÷ (€2.6b - €281m) (Based on the trailing twelve months to September 2020).

So, Hamburger Hafen und Logistik has an ROCE of 5.6%. On its own, that's a low figure but it's around the 6.7% average generated by the Infrastructure industry.

See our latest analysis for Hamburger Hafen und Logistik

In the above chart we have measured Hamburger Hafen und Logistik'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 Hamburger Hafen und Logistik here for free.

How Are Returns Trending?

On the surface, the trend of ROCE at Hamburger Hafen und Logistik doesn't inspire confidence. Over the last five years, returns on capital have decreased to 5.6% from 9.4% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Hamburger Hafen und Logistik's ROCE

To conclude, we've found that Hamburger Hafen und Logistik is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 85% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know about the risks facing Hamburger Hafen und Logistik, we've discovered 4 warning signs that you should be aware of.

While Hamburger Hafen und Logistik 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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