Yahoo Finance Here's What's Concerning About Hamilton Beach Brands Holding's (NYSE:HBB) Returns On Capital
What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Having said that, from a first glance at Hamilton Beach Brands Holding (NYSE:HBB) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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 Hamilton Beach Brands Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = US$38m ÷ (US$417m - US$140m) (Based on the trailing twelve months to September 2022).
So, Hamilton Beach Brands Holding has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Durables industry average of 17%.
View our latest analysis for Hamilton Beach Brands Holding
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Hamilton Beach Brands Holding has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
In terms of Hamilton Beach Brands Holding's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 39% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
On a side note, Hamilton Beach Brands Holding has done well to pay down its current liabilities to 34% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
The Key Takeaway
To conclude, we've found that Hamilton Beach Brands Holding is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 51% in the last five years. Therefore based on the analysis done in this article, we don't think Hamilton Beach Brands Holding has the makings of a multi-bagger.
On a final note, we found 3 warning signs for Hamilton Beach Brands Holding (2 are a bit unpleasant) you should be aware of.
While Hamilton Beach Brands Holding 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.
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