Be Wary Of Haulotte Group (EPA:PIG) And Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Haulotte Group (EPA:PIG) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Haulotte Group is:

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

0.016 = €6.0m ÷ (€538m - €165m) (Based on the trailing twelve months to June 2022).

Therefore, Haulotte Group has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 5.1%.

See our latest analysis for Haulotte Group

In the above chart we have measured Haulotte Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Haulotte Group.

What Can We Tell From Haulotte Group's ROCE Trend?

In terms of Haulotte Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.6% from 12% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Haulotte Group's ROCE

While returns have fallen for Haulotte Group in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. Despite these promising trends, the stock has collapsed 78% over the last five years, so there could be other factors hurting the company's prospects. Therefore, we'd suggest researching the stock further to uncover more about the business.

If you want to know some of the risks facing Haulotte Group we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Haulotte Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.