We Like These Underlying Return On Capital Trends At LUG (WSE:LUG)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at LUG (WSE:LUG) and its trend of ROCE, we really liked what we saw.

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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. Analysts use this formula to calculate it for LUG:

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

0.031 = zł2.5m ÷ (zł206m - zł125m) (Based on the trailing twelve months to June 2025).

Thus, LUG has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Electrical industry average of 13%.

See our latest analysis for LUG

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

What Can We Tell From LUG's ROCE Trend?

LUG has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 3.1% which is a sight for sore eyes. In addition to that, LUG is employing 28% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Another thing to note, LUG has a high ratio of current liabilities to total assets of 61%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From LUG's ROCE

To the delight of most shareholders, LUG has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 61% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

LUG does have some risks, we noticed 5 warning signs (and 4 which are significant) we think you should know about.

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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.