Loulis Food Ingredients (ATH:KYLO) Has Some Way To Go To Become A Multi-Bagger

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Loulis Food Ingredients (ATH:KYLO), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Loulis Food Ingredients is:

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

0.016 = €2.8m ÷ (€223m - €50m) (Based on the trailing twelve months to December 2022).

Therefore, Loulis Food Ingredients has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Food industry average of 8.7%.

See our latest analysis for Loulis Food Ingredients

Historical performance is a great place to start when researching a stock so above you can see the gauge for Loulis Food Ingredients' ROCE against it's prior returns. If you're interested in investigating Loulis Food Ingredients' past further, check out this free graph of past earnings, revenue and cash flow.

SWOT Analysis for Loulis Food Ingredients

What Can We Tell From Loulis Food Ingredients' ROCE Trend?

There are better returns on capital out there than what we're seeing at Loulis Food Ingredients. The company has consistently earned 1.6% for the last five years, and the capital employed within the business has risen 23% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

Long story short, while Loulis Food Ingredients has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 60% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Loulis Food Ingredients (of which 2 don't sit too well with us!) that you should know about.

While Loulis Food Ingredients isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.