Landis+Gyr Group (VTX:LAND) Hasn't Managed To Accelerate Its Returns
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Landis+Gyr Group (VTX:LAND) and its ROCE trend, we weren't exactly thrilled.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Landis+Gyr Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.031 = US$53m ÷ (US$2.2b - US$540m) (Based on the trailing twelve months to September 2022).
So, Landis+Gyr Group has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Electronic industry average of 19%.
View our latest analysis for Landis+Gyr Group
In the above chart we have measured Landis+Gyr Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Landis+Gyr Group here for free.
What Does the ROCE Trend For Landis+Gyr Group Tell Us?
Things have been pretty stable at Landis+Gyr 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 don't be surprised if Landis+Gyr Group doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Landis+Gyr Group has been paying out a decent 59% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
Our Take On Landis+Gyr Group's ROCE
In summary, Landis+Gyr Group isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly, the stock has only gained 11% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
On a final note, we found 3 warning signs for Landis+Gyr Group (1 shouldn't be ignored) you should be aware of.
While Landis+Gyr 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.
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