Capital Allocation Trends At MYT Netherlands Parent B.V (NYSE:MYTE) Aren't Ideal

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. 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 MYT Netherlands Parent B.V (NYSE:MYTE) 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)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for MYT Netherlands Parent B.V:

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

0.0029 = €1.4m ÷ (€694m - €194m) (Based on the trailing twelve months to June 2023).

Thus, MYT Netherlands Parent B.V has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 12%.

View our latest analysis for MYT Netherlands Parent B.V

Above you can see how the current ROCE for MYT Netherlands Parent 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 to see what analysts are forecasting going forward, you should check out our free report for MYT Netherlands Parent B.V.

What Does the ROCE Trend For MYT Netherlands Parent B.V Tell Us?

When we looked at the ROCE trend at MYT Netherlands Parent B.V, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 0.3% from 5.4% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From MYT Netherlands Parent B.V's ROCE

While returns have fallen for MYT Netherlands Parent B.V in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 63% in the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you'd like to know about the risks facing MYT Netherlands Parent B.V, we've discovered 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.