If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. However, after briefly looking over the numbers, we don't think Fielmann Group (ETR:FIE) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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 Fielmann Group, this is the formula:

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

0.15 = €221m ÷ (€2.0b - €530m) (Based on the trailing twelve months to March 2024).

Thus, Fielmann Group has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.3% generated by the Specialty Retail industry.

See our latest analysis for Fielmann Group

Above you can see how the current ROCE for Fielmann Group 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 Fielmann Group for free.

How Are Returns Trending?

On the surface, the trend of ROCE at Fielmann Group doesn't inspire confidence. Over the last five years, returns on capital have decreased to 15% from 34% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that Fielmann Group is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 31% in the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

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