Here's What's Concerning About MYT Netherlands Parent B.V's (NYSE:MYTE) Returns On Capital
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. However, after investigating MYT Netherlands Parent B.V (NYSE:MYTE), we don't think it's current trends fit the mold of a multi-bagger.
What Is 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. The formula for this calculation on MYT Netherlands Parent B.V is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0029 = €1.4m ÷ (€694m - €194m) (Based on the trailing twelve months to June 2023).
Therefore, MYT Netherlands Parent B.V has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 13%.
See our latest analysis for MYT Netherlands Parent B.V
In the above chart we have measured MYT Netherlands Parent B.V's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for MYT Netherlands Parent B.V.
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at MYT Netherlands Parent B.V doesn't inspire confidence. Around five years ago the returns on capital were 5.4%, but since then they've fallen to 0.3%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
The Bottom Line
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for MYT Netherlands Parent B.V. But since the stock has dived 71% in the last year, there could be other drivers that are influencing the business' outlook. Therefore, we'd suggest researching the stock further to uncover more about the business.
One more thing, we've spotted 2 warning signs facing MYT Netherlands Parent B.V that you might find interesting.
While MYT Netherlands Parent B.V 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.
