Return Trends At Foley Wines (NZSE:FWL) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Foley Wines (NZSE:FWL), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. Analysts use this formula to calculate it for Foley Wines:

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

0.043 = NZ$9.8m ÷ (NZ$246m - NZ$18m) (Based on the trailing twelve months to December 2023).

Therefore, Foley Wines has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 11%.

See our latest analysis for Foley Wines

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

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Foley Wines. The company has consistently earned 4.3% for the last five years, and the capital employed within the business has risen 70% 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 Foley Wines' ROCE

Long story short, while Foley Wines has been reinvesting its capital, the returns that it's generating haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 57% in the last five years. Therefore based on the analysis done in this article, we don't think Foley Wines has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Foley Wines (of which 1 is a bit unpleasant!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com