Yahoo Finance Hallenstein Glasson Holdings (NZSE:HLG) Might Be Having Difficulty Using Its Capital Effectively
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Having said that, while the ROCE is currently high for Hallenstein Glasson Holdings (NZSE:HLG), we aren't jumping out of our chairs because returns are decreasing.
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. To calculate this metric for Hallenstein Glasson Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = NZ$38m ÷ (NZ$182m - NZ$49m) (Based on the trailing twelve months to February 2022).
So, Hallenstein Glasson Holdings has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 17%.
Check out our latest analysis for Hallenstein Glasson Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Hallenstein Glasson Holdings' ROCE against it's prior returns. If you'd like to look at how Hallenstein Glasson Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From Hallenstein Glasson Holdings' ROCE Trend?
On the surface, the trend of ROCE at Hallenstein Glasson Holdings doesn't inspire confidence. Historically returns on capital were even higher at 39%, but they have dropped over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
In Conclusion...
In summary, Hallenstein Glasson Holdings is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 171% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
While Hallenstein Glasson Holdings doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.
Hallenstein Glasson Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
