The Returns On Capital At Helen of Troy (NASDAQ:HELE) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Helen of Troy (NASDAQ:HELE), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Helen of Troy is:

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

0.083 = US$217m ÷ (US$3.1b - US$523m) (Based on the trailing twelve months to November 2022).

Therefore, Helen of Troy has an ROCE of 8.3%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 17%.

View our latest analysis for Helen of Troy

Above you can see how the current ROCE for Helen of Troy compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Helen of Troy here for free.

SWOT Analysis for Helen of Troy

What Does the ROCE Trend For Helen of Troy Tell Us?

On the surface, the trend of ROCE at Helen of Troy doesn't inspire confidence. Over the last five years, returns on capital have decreased to 8.3% from 13% five years ago. However it looks like Helen of Troy might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Helen of Troy's ROCE

Bringing it all together, while we're somewhat encouraged by Helen of Troy's reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 3.9% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we've found 1 warning sign for Helen of Troy that we think you should be aware of.

While Helen of Troy 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.