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Here's What To Make Of Helen of Troy's (NASDAQ:HELE) Returns On Capital

Simply Wall St
·3 min read

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Helen of Troy (NASDAQ:HELE), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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 Helen of Troy:

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

0.14 = US$232m ÷ (US$2.0b - US$366m) (Based on the trailing twelve months to May 2020).

Thus, Helen of Troy has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 13% generated by the Consumer Durables industry.

See our latest analysis for Helen of Troy

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In the above chart we have measured Helen of Troy'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 Helen of Troy here for free.

What Can We Tell From Helen of Troy's ROCE Trend?

There hasn't been much to report for Helen of Troy's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Helen of Troy doesn't end up being a multi-bagger in a few years time.

In Conclusion...

In a nutshell, Helen of Troy has been trudging along with the same returns from the same amount of capital over the last five years. Investors must think there's better things to come because the stock has knocked it out of the park delivering a 142% 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.

Like most companies, Helen of Troy does come with some risks, and we've found 2 warning signs that you should be aware of.

While Helen of Troy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.