The Returns At Heavitree Brewery (LON:HVTA) Aren't Growing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Heavitree Brewery (LON:HVTA), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Heavitree Brewery is:

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

0.076 = UK£1.4m ÷ (UK£21m - UK£1.7m) (Based on the trailing twelve months to October 2022).

So, Heavitree Brewery has an ROCE of 7.6%. In absolute terms, that's a low return but it's around the Hospitality industry average of 6.6%.

See our latest analysis for Heavitree Brewery

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Heavitree Brewery, check out these free graphs here.

SWOT Analysis for Heavitree Brewery

The Trend Of ROCE

There hasn't been much to report for Heavitree Brewery's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Heavitree Brewery to be a multi-bagger going forward.

Our Take On Heavitree Brewery's ROCE

In a nutshell, Heavitree Brewery has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 44% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Heavitree Brewery has the makings of a multi-bagger.

On a final note, we found 5 warning signs for Heavitree Brewery (2 are concerning) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.