H&K (EPA:MLHK) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, H&K (EPA:MLHK) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on H&K is:

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

0.15 = €40m ÷ (€361m - €90m) (Based on the trailing twelve months to March 2024).

Therefore, H&K has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Aerospace & Defense industry average of 9.6% it's much better.

View our latest analysis for H&K

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating H&K's past further, check out this free graph covering H&K's past earnings, revenue and cash flow.

What Does the ROCE Trend For H&K Tell Us?

Investors would be pleased with what's happening at H&K. The data shows that returns on capital have increased substantially over the last five years to 15%. The amount of capital employed has increased too, by 36%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what H&K has. Considering the stock has delivered 1.2% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

If you'd like to know more about H&K, we've spotted 3 warning signs, and 2 of them can't be ignored.

While H&K 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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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.