Return Trends At Huhtamäki Oyj (HEL:HUH1V) Aren't Appealing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Huhtamäki Oyj (HEL:HUH1V), it didn't seem to tick all of these boxes.

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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. To calculate this metric for Huhtamäki Oyj, this is the formula:

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

0.093 = €350m ÷ (€4.9b - €1.1b) (Based on the trailing twelve months to December 2024).

So, Huhtamäki Oyj has an ROCE of 9.3%. On its own, that's a low figure but it's around the 9.5% average generated by the Packaging industry.

View our latest analysis for Huhtamäki Oyj

Above you can see how the current ROCE for Huhtamäki Oyj compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Huhtamäki Oyj for free.

The Trend Of ROCE

The returns on capital haven't changed much for Huhtamäki Oyj in recent years. Over the past five years, ROCE has remained relatively flat at around 9.3% and the business has deployed 41% more capital into its operations. 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.

The Bottom Line

In conclusion, Huhtamäki Oyj has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 17% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Huhtamäki Oyj does have some risks though, and we've spotted 1 warning sign for Huhtamäki Oyj that you might be interested in.

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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.