HSS Hire Group (LON:HSS) Hasn't Managed To Accelerate Its Returns

Did you know there are some financial metrics that can provide clues of a potential 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. Although, when we looked at HSS Hire Group (LON:HSS), it didn't seem to tick all of these boxes.

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

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. Analysts use this formula to calculate it for HSS Hire Group:

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

0.063 = UK£19m ÷ (UK£402m - UK£106m) (Based on the trailing twelve months to June 2024).

So, HSS Hire Group has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 14%.

View our latest analysis for HSS Hire Group

In the above chart we have measured HSS Hire 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 analyst report for HSS Hire Group .

So How Is HSS Hire Group's ROCE Trending?

Things have been pretty stable at HSS Hire Group, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if HSS Hire Group doesn't end up being a multi-bagger in a few years time. On top of that you'll notice that HSS Hire Group has been paying out a large portion (70%) of earnings in the form of dividends to shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

In Conclusion...

In a nutshell, HSS Hire Group has been trudging along with the same returns from the same amount of capital over the last five years. Moreover, since the stock has crumbled 78% over the last five years, it appears investors are expecting the worst. Therefore based on the analysis done in this article, we don't think HSS Hire Group has the makings of a multi-bagger.

If you want to continue researching HSS Hire Group, you might be interested to know about the 3 warning signs that our analysis has discovered.

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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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.