Hermès International Société en commandite par actions (EPA:RMS) Is Reinvesting To Multiply In Value

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Hermès International Société en commandite par actions (EPA:RMS), we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Hermès International Société en commandite par actions:

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

0.33 = €5.8b ÷ (€20b - €3.2b) (Based on the trailing twelve months to December 2023).

So, Hermès International Société en commandite par actions has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Luxury industry average of 21%.

View our latest analysis for Hermès International Société en commandite par actions

Above you can see how the current ROCE for Hermès International Société en commandite par actions 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 Hermès International Société en commandite par actions for free.

What Can We Tell From Hermès International Société en commandite par actions' ROCE Trend?

We'd be pretty happy with returns on capital like Hermès International Société en commandite par actions. Over the past five years, ROCE has remained relatively flat at around 33% and the business has deployed 156% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Hermès International Société en commandite par actions can keep this up, we'd be very optimistic about its future.

The Bottom Line On Hermès International Société en commandite par actions' ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 288% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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 RMS that compares the share price and estimated value.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.