Hera (BIT:HER) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 investigating Hera (BIT:HER), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Hera:

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

0.076 = €731m ÷ (€14b - €4.6b) (Based on the trailing twelve months to June 2023).

Therefore, Hera has an ROCE of 7.6%. On its own that's a low return, but compared to the average of 6.0% generated by the Integrated Utilities industry, it's much better.

View our latest analysis for Hera

In the above chart we have measured Hera's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hera.

So How Is Hera's ROCE Trending?

In terms of Hera's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 7.6% for the last five years, and the capital employed within the business has risen 51% 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 On Hera's ROCE

In conclusion, Hera has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 25% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to know some of the risks facing Hera we've found 2 warning signs (1 is potentially serious!) that you should be aware of before investing here.

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

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.