Stock Analysis

Wilhelmina International (NASDAQ:WHLM) Is Looking To Continue Growing Its Returns On Capital

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NasdaqCM:WHLM
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Wilhelmina International (NASDAQ:WHLM) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Wilhelmina International, this is the formula:

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

0.11 = US$2.7m ÷ (US$36m - US$12m) (Based on the trailing twelve months to September 2021).

Thus, Wilhelmina International has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 8.6% it's much better.

See our latest analysis for Wilhelmina International

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NasdaqCM:WHLM Return on Capital Employed January 24th 2022

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

What Can We Tell From Wilhelmina International's ROCE Trend?

You'd find it hard not to be impressed with the ROCE trend at Wilhelmina International. The figures show that over the last five years, returns on capital have grown by 177%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Wilhelmina International appears to been achieving more with less, since the business is using 21% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

In Conclusion...

In the end, Wilhelmina International has proven it's capital allocation skills are good with those higher returns from less amount of capital. Astute investors may have an opportunity here because the stock has declined 45% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing Wilhelmina International, we've discovered 3 warning signs that you should be aware of.

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

Valuation is complex, but we're helping make it simple.

Find out whether Wilhelmina International is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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