LuxExperience B.V (NYSE:LUXE) Will Be Hoping To Turn Its Returns On Capital Around

What trends should we look for it we want to identify stocks that can 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at LuxExperience B.V (NYSE:LUXE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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 LuxExperience B.V is:

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

0.012 = €5.5m ÷ (€697m - €241m) (Based on the trailing twelve months to March 2025).

Thus, LuxExperience B.V has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 13%.

View our latest analysis for LuxExperience B.V

Above you can see how the current ROCE for LuxExperience B.V 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 LuxExperience B.V for free.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at LuxExperience B.V, we didn't gain much confidence. Around five years ago the returns on capital were 9.2%, but since then they've fallen to 1.2%. However it looks like LuxExperience B.V might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by LuxExperience B.V'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 41% in the last three years. 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.

LuxExperience B.V does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.