Returns At Haypp Group (STO:HAYPP) Are On The Way Up

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Haypp Group (STO:HAYPP) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Haypp Group, this is the formula:

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

0.016 = kr11m ÷ (kr1.0b - kr338m) (Based on the trailing twelve months to June 2023).

So, Haypp Group has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 8.9%.

View our latest analysis for Haypp Group

Above you can see how the current ROCE for Haypp Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Haypp Group.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Haypp Group is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses four years ago, but now it's earning 1.6% which is a sight for sore eyes. Not only that, but the company is utilizing 167% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

In summary, it's great to see that Haypp Group has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a solid 100% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Haypp Group that you might find interesting.

While Haypp Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.