Vimi Fasteners (BIT:VIM) Has More To Do To Multiply In Value Going Forward

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Vimi Fasteners (BIT:VIM) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. To calculate this metric for Vimi Fasteners, this is the formula:

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

0.066 = €3.2m ÷ (€79m - €32m) (Based on the trailing twelve months to June 2023).

Thus, Vimi Fasteners has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 11%.

See our latest analysis for Vimi Fasteners

In the above chart we have measured Vimi Fasteners' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Vimi Fasteners' ROCE Trending?

The returns on capital haven't changed much for Vimi Fasteners in recent years. The company has consistently earned 6.6% for the last five years, and the capital employed within the business has risen 48% in that time. 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.

What We Can Learn From Vimi Fasteners' ROCE

In conclusion, Vimi Fasteners has been investing more capital into the business, but returns on that capital haven't increased. And in the last five years, the stock has given away 34% 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 Vimi Fasteners has the makings of a multi-bagger.

Vimi Fasteners does have some risks though, and we've spotted 4 warning signs for Vimi Fasteners that you might be interested in.

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.