The Returns At Fourlis Holdings (ATH:FOYRK) Provide Us With Signs Of What's To Come

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after briefly looking over the numbers, we don't think Fourlis Holdings (ATH:FOYRK) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Fourlis Holdings:

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

0.057 = €26m ÷ (€644m - €178m) (Based on the trailing twelve months to September 2020).

Thus, Fourlis Holdings has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 10%.

Check out our latest analysis for Fourlis Holdings

Above you can see how the current ROCE for Fourlis Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Fourlis Holdings here for free.

So How Is Fourlis Holdings' ROCE Trending?

The returns on capital haven't changed much for Fourlis Holdings in recent years. Over the past five years, ROCE has remained relatively flat at around 5.7% and the business has deployed 78% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, Fourlis Holdings has done well to reduce current liabilities to 28% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

Our Take On Fourlis Holdings' ROCE

Long story short, while Fourlis Holdings has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 69% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we found 2 warning signs for Fourlis Holdings (1 is potentially serious) you should be aware of.

While Fourlis Holdings 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. 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.
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