RugVista Group's (STO:RUG) Returns Have Hit A Wall

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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 RugVista Group (STO:RUG) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. The formula for this calculation on RugVista Group is:

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

0.15 = kr83m ÷ (kr680m - kr142m) (Based on the trailing twelve months to March 2023).

Therefore, RugVista Group has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 6.6% generated by the Specialty Retail industry.

View our latest analysis for RugVista Group

Above you can see how the current ROCE for RugVista Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for RugVista Group's returns and its level of capital employed because both metrics have been steady for the past three years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if RugVista Group doesn't end up being a multi-bagger in a few years time. This probably explains why RugVista Group is paying out 50% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

The Bottom Line

We can conclude that in regards to RugVista Group's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 26% over the last year, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

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

While RugVista 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.