If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Hain Celestial Group (NASDAQ:HAIN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Hain Celestial Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.079 = US$173m ÷ (US$2.5b - US$298m) (Based on the trailing twelve months to December 2021).
Thus, Hain Celestial Group has an ROCE of 7.9%. In absolute terms, that's a low return and it also under-performs the Food industry average of 10.0%.
Above you can see how the current ROCE for Hain Celestial Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hain Celestial Group.
What Does the ROCE Trend For Hain Celestial Group Tell Us?
Things have been pretty stable at Hain Celestial Group, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Hain Celestial Group in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
Our Take On Hain Celestial Group's ROCE
In a nutshell, Hain Celestial Group has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 14% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
One more thing to note, we've identified 2 warning signs with Hain Celestial Group and understanding these should be part of your investment process.
While Hain Celestial Group 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.
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.