Investors encountered slowing capital returns at High Liner Foods (TSE:HLF)

If we want to find a potential multi-bagger, there are often underlying trends that can provide clues. Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount of capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. However, after briefly looking at the numbers, we don’t think High Liner Foods (TSE:HLF) has the makings of a multi-bagger in the future, but let’s see why it might be.

What is return on capital employed (ROCE)?

For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. Analysts use this formula to calculate it for High Liner Foods:

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

0.097 = $63 million ÷ ($839 million – $188 million) (Based on the last twelve months to July 2022).

Therefore, High Liner Foods has a ROCE of 9.7%. On its own, that’s a poor return, but compared to the 7.5% average generated by the food industry, it’s much better.

Check out our latest analysis for High Liner Foods

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Above, you can see how High Liner Foods’ current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you wish, you can view analyst forecasts covering High Liner Foods here for free.

What does the ROCE trend tell us for High Liner foods?

Things have been fairly stable at High Liner Foods, with its capital employed and returns on that capital remaining about the same over the past five years. Companies with these characteristics tend to be mature and stable operations, as they are past the growth phase. With that in mind, unless investment picks up in the future, we wouldn’t expect High Liner Foods to be a multi-bagger in the future.

Our view on High Liner Foods ROCE

We can conclude that when it comes to High Liner Foods Returns on Capital Employed and trends, there is not much change to report. And investors may recognize these trends since the stock has only returned a total of 16% to shareholders over the past five years. So if you’re looking for a multi-bagger, we think you’d have better luck elsewhere.

Finally we found 2 High Liner Food Warning Signs (1 is significant) that you should be aware of.

Although High Liner Foods does not generate the highest yield, check out this free list of companies that achieve high returns on equity with strong balance sheets.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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