Did you know there are some financial metrics that can provide clues of a potential 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Fenix Outdoor International (STO:FOI B) and its ROCE trend, we weren't exactly thrilled.
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. To calculate this metric for Fenix Outdoor International, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.052 = €28m ÷ (€717m - €186m) (Based on the trailing twelve months to June 2025).
Thus, Fenix Outdoor International has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 10%.
Check out our latest analysis for Fenix Outdoor International
Historical performance is a great place to start when researching a stock so above you can see the gauge for Fenix Outdoor International's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Fenix Outdoor International.
What Does the ROCE Trend For Fenix Outdoor International Tell Us?
When we looked at the ROCE trend at Fenix Outdoor International, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.2% from 15% five years ago. 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 Key Takeaway
Bringing it all together, while we're somewhat encouraged by Fenix Outdoor International's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 48% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Fenix Outdoor International has the makings of a multi-bagger.
On a final note, we found 3 warning signs for Fenix Outdoor International (2 are concerning) you should be aware of.
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.