Hermès International Société en commandite par actions (EPA:RMS) Is Reinvesting To Multiply In Value
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Hermès International Société en commandite par actions (EPA:RMS) looks attractive right now, so lets see what the trend of returns can tell us.
Understanding 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. To calculate this metric for Hermès International Société en commandite par actions, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.35 = €5.9b ÷ (€21b - €3.3b) (Based on the trailing twelve months to June 2024).
Therefore, Hermès International Société en commandite par actions has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.
See our latest analysis for Hermès International Société en commandite par actions
In the above chart we have measured Hermès International Société en commandite par actions' 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 analyst report for Hermès International Société en commandite par actions .
What Does the ROCE Trend For Hermès International Société en commandite par actions Tell Us?
We'd be pretty happy with returns on capital like Hermès International Société en commandite par actions. The company has consistently earned 35% for the last five years, and the capital employed within the business has risen 147% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.
In Conclusion...
In short, we'd argue Hermès International Société en commandite par actions has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 253% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for RMS on our platform that is definitely worth checking out.
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.
Valuation is complex, but we're here to simplify it.
Discover if Hermès International Société en commandite par actions might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.
About ENXTPA:RMS
Hermès International Société en commandite par actions
Engages in the production, wholesale, and retail of various goods.
Flawless balance sheet with solid track record.