Will High (EPA:HCO) Multiply In Value Going Forward?

There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of High (EPA:HCO) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for High, this is the formula:

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

0.11 = €13m ÷ (€272m - €152m) (Based on the trailing twelve months to June 2020).

Therefore, High has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.5% generated by the Media industry.

See our latest analysis for High

Above you can see how the current ROCE for High compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for High.

What Can We Tell From High's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 38% in that time. 11% is a pretty standard return, and it provides some comfort knowing that High has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a separate but related note, it's important to know that High has a current liabilities to total assets ratio of 56%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On High's ROCE

In the end, High has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 26% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if High is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you're still interested in High it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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