If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. In light of that, when we looked at United Homes Group (NASDAQ:UHG) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for United Homes Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.02 = US$4.4m ÷ (US$281m - US$63m) (Based on the trailing twelve months to June 2025).
Therefore, United Homes Group has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 13%.
View our latest analysis for United Homes Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for United Homes Group's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of United Homes Group.
The Trend Of ROCE
The trend of ROCE doesn't look fantastic because it's fallen from 36% four years ago, while the business's capital employed increased by 57%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. United Homes Group probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.
The Key Takeaway
Bringing it all together, while we're somewhat encouraged by United Homes Group's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 60% in the last three years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
One more thing: We've identified 5 warning signs with United Homes Group (at least 1 which is potentially serious) , and understanding them would certainly be useful.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.