Shareholders Are Optimistic That LVMH Moët Hennessy - Louis Vuitton Société Européenne (EPA:MC) Will Multiply In Value

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. That's why when we briefly looked at LVMH Moët Hennessy - Louis Vuitton Société Européenne's (EPA:MC) ROCE trend, we were very happy with what we saw.

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. Analysts use this formula to calculate it for LVMH Moët Hennessy - Louis Vuitton Société Européenne:

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

0.21 = €23b ÷ (€144b - €33b) (Based on the trailing twelve months to December 2023).

So, LVMH Moët Hennessy - Louis Vuitton Société Européenne has an ROCE of 21%. While that is an outstanding return, the rest of the Luxury industry generates similar returns, on average.

View our latest analysis for LVMH Moët Hennessy - Louis Vuitton Société Européenne

In the above chart we have measured LVMH Moët Hennessy - Louis Vuitton Société Européenne'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 LVMH Moët Hennessy - Louis Vuitton Société Européenne for free.

What Does the ROCE Trend For LVMH Moët Hennessy - Louis Vuitton Société Européenne Tell Us?

It's hard not to be impressed by LVMH Moët Hennessy - Louis Vuitton Société Européenne's returns on capital. Over the past five years, ROCE has remained relatively flat at around 21% and the business has deployed 92% more capital into its operations. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line

LVMH Moët Hennessy - Louis Vuitton Société Européenne has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 188% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for MC that compares the share price and estimated value.

LVMH Moët Hennessy - Louis Vuitton Société Européenne is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.