Returns At Hayward Holdings (NYSE:HAYW) Are On The Way Up

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Hayward Holdings (NYSE:HAYW) so let's look a bit deeper.

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 Hayward Holdings is:

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

0.13 = US$341m ÷ (US$3.0b - US$304m) (Based on the trailing twelve months to December 2021).

Therefore, Hayward Holdings has an ROCE of 13%. In isolation, that's a pretty standard return but against the Leisure industry average of 20%, it's not as good.

Check out our latest analysis for Hayward Holdings

In the above chart we have measured Hayward Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hayward Holdings.

What Does the ROCE Trend For Hayward Holdings Tell Us?

Hayward Holdings' ROCE growth is quite impressive. The figures show that over the last two years, ROCE has grown 281% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Hayward Holdings' ROCE

In summary, we're delighted to see that Hayward Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Investors may not be impressed by the favorable underlying trends yet because over the last year the stock has only returned 2.3% to shareholders. So with that in mind, we think the stock deserves further research.

If you want to know some of the risks facing Hayward Holdings we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Hayward Holdings 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.