The Trends At Hallenstein Glasson Holdings (NZSE:HLG) That You Should Know About

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Looking at Hallenstein Glasson Holdings (NZSE:HLG), it does have a high ROCE right now, but lets see how returns are trending.

Understanding 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. The formula for this calculation on Hallenstein Glasson Holdings is:

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

0.26 = NZ$38m ÷ (NZ$211m - NZ$66m) (Based on the trailing twelve months to August 2020).

Therefore, Hallenstein Glasson Holdings has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 14%.

Check out our latest analysis for Hallenstein Glasson Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hallenstein Glasson Holdings' ROCE against it's prior returns. If you'd like to look at how Hallenstein Glasson Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Hallenstein Glasson Holdings' ROCE Trend?

In terms of Hallenstein Glasson Holdings' historical ROCE movements, the trend isn't fantastic. Historically returns on capital were even higher at 37%, but they have dropped over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

To conclude, we've found that Hallenstein Glasson Holdings is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 312% return in the last five 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.

Hallenstein Glasson Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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