VIZIO Holding (NYSE:VZIO) Has Some Way To Go To Become A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think VIZIO Holding (NYSE:VZIO) 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)?

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 VIZIO Holding:

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

0.044 = US$18m ÷ (US$838m - US$427m) (Based on the trailing twelve months to June 2023).

So, VIZIO Holding has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 15%.

See our latest analysis for VIZIO Holding

Above you can see how the current ROCE for VIZIO Holding 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 VIZIO Holding here for free.

What Does the ROCE Trend For VIZIO Holding Tell Us?

The returns on capital haven't changed much for VIZIO Holding in recent years. Over the past five years, ROCE has remained relatively flat at around 4.4% and the business has deployed 554% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, VIZIO Holding has done well to reduce current liabilities to 51% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 51%, some of that risk is still prevalent.

The Key Takeaway

Long story short, while VIZIO Holding has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 58% over the last year, investors may not be too optimistic on this trend improving either. 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.

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

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

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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.