Return Trends At Hamburger Hafen und Logistik (ETR:HHFA) Aren't Appealing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Hamburger Hafen und Logistik (ETR:HHFA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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)

0.073 = €173m ÷ (€2.7b - €340m) (Based on the trailing twelve months to March 2021).

Therefore, Hamburger Hafen und Logistik has an ROCE of 7.3%. Even though it's in line with the industry average of 7.3%, it's still a low return by itself.

Check out 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.

The Trend Of ROCE

The returns on capital haven't changed much for Hamburger Hafen und Logistik in recent years. The company has employed 50% more capital in the last five years, and the returns on that capital have remained stable at 7.3%. 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.

What We Can Learn From Hamburger Hafen und Logistik's ROCE

As we've seen above, Hamburger Hafen und Logistik's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 77% 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.

On a separate note, we've found 5 warning signs for Hamburger Hafen und Logistik 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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