HelloFresh (ETR:HFG) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at HelloFresh (ETR:HFG) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for HelloFresh, this is the formula:

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

0.019 = €30m ÷ (€2.6b - €961m) (Based on the trailing twelve months to March 2024).

So, HelloFresh has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 11%.

See our latest analysis for HelloFresh

roce

Above you can see how the current ROCE for HelloFresh 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 HelloFresh for free.

So How Is HelloFresh's ROCE Trending?

HelloFresh has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 1.9% which is a sight for sore eyes. In addition to that, HelloFresh is employing 452% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

Long story short, we're delighted to see that HelloFresh's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 35% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching HelloFresh, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.