The Returns At Hampidjan Hf (ICE:HAMP) Aren't Growing

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Hampidjan Hf (ICE:HAMP), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Hampidjan Hf, this is the formula:

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

0.088 = €21m ÷ (€295m - €57m) (Based on the trailing twelve months to December 2022).

So, Hampidjan Hf has an ROCE of 8.8%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 11%.

View our latest analysis for Hampidjan Hf

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hampidjan Hf's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Hampidjan Hf, check out these free graphs here.

SWOT Analysis for Hampidjan Hf

What Can We Tell From Hampidjan Hf's ROCE Trend?

In terms of Hampidjan Hf's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 8.8% and the business has deployed 49% more capital into its operations. 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 On Hampidjan Hf's ROCE

In summary, Hampidjan Hf has simply been reinvesting capital and generating the same low rate of return as before. Yet to long term shareholders the stock has gifted them an incredible 139% return in the last three years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know more about Hampidjan Hf, we've spotted 4 warning signs, and 2 of them are potentially serious.

While Hampidjan Hf 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.