Wilhelmina International's (NASDAQ:WHLM) Returns Have Hit A Wall

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Wilhelmina International (NASDAQ:WHLM) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is 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. The formula for this calculation on Wilhelmina International is:

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

0.023 = US$679k ÷ (US$42m - US$12m) (Based on the trailing twelve months to September 2023).

Thus, Wilhelmina International has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 10%.

See our latest analysis for Wilhelmina International

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're interested in investigating Wilhelmina International's past further, check out this free graph covering Wilhelmina International's past earnings, revenue and cash flow.

How Are Returns Trending?

Over the past five years, Wilhelmina International's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Wilhelmina International doesn't end up being a multi-bagger in a few years time.

The Bottom Line

In a nutshell, Wilhelmina International has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 24% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Wilhelmina International has the makings of a multi-bagger.

If you'd like to know about the risks facing Wilhelmina International, we've discovered 1 warning sign that you should be aware of.

While Wilhelmina International 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.