Return Trends At Lovable Lingerie (NSE:LOVABLE) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Lovable Lingerie (NSE:LOVABLE), it didn't seem to tick all of these boxes.

What Is 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. To calculate this metric for Lovable Lingerie, this is the formula:

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

0.044 = ₹83m ÷ (₹2.1b - ₹229m) (Based on the trailing twelve months to September 2022).

Therefore, Lovable Lingerie has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 12%.

Check out our latest analysis for Lovable Lingerie

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

So How Is Lovable Lingerie's ROCE Trending?

Over the past five years, Lovable Lingerie's ROCE has remained relatively flat while the business is using 21% less capital than before. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. In addition to that, since the ROCE doesn't scream "quality" at 4.4%, it's hard to get excited about these developments.

What We Can Learn From Lovable Lingerie's ROCE

In summary, Lovable Lingerie isn't reinvesting funds back into the business and returns aren't growing. And investors appear hesitant that the trends will pick up because the stock has fallen 50% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing to note, we've identified 3 warning signs with Lovable Lingerie and understanding these should be part of your investment process.

While Lovable Lingerie 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.