The Returns At Lammhults Design Group (STO:LAMM B) Aren't Growing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Lammhults Design Group (STO:LAMM B) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Lammhults Design Group:

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

0.073 = kr45m ÷ (kr923m - kr302m) (Based on the trailing twelve months to December 2022).

Therefore, Lammhults Design Group has an ROCE of 7.3%. On its own, that's a low figure but it's around the 8.6% average generated by the Commercial Services industry.

Check out our latest analysis for Lammhults Design Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Lammhults Design Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Lammhults Design Group's ROCE Trending?

There hasn't been much to report for Lammhults Design Group's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Lammhults Design Group doesn't end up being a multi-bagger in a few years time.

The Bottom Line On Lammhults Design Group's ROCE

In a nutshell, Lammhults Design Group has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 27% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 3 warning signs with Lammhults Design Group (at least 1 which is concerning) , and understanding them would certainly be useful.

While Lammhults Design Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.