Slowing Rates Of Return At Hain Celestial Group (NASDAQ:HAIN) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Hain Celestial Group (NASDAQ:HAIN), it didn't seem to tick all of these boxes.

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. To calculate this metric for Hain Celestial Group, this is the formula:

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

0.041 = US$80m ÷ (US$2.2b - US$267m) (Based on the trailing twelve months to December 2023).

Thus, Hain Celestial Group has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Food industry average of 11%.

See our latest analysis for Hain Celestial Group

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 analyst report for Hain Celestial Group .

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Hain Celestial Group's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's 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.

What We Can Learn From Hain Celestial Group's ROCE

In summary, Hain Celestial Group isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 65% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

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

While Hain Celestial Group 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.