Hillman Solutions (NASDAQ:HLMN) Hasn't Managed To Accelerate Its Returns
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Hillman Solutions (NASDAQ:HLMN) 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)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Hillman Solutions:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.016 = US$37m ÷ (US$2.6b - US$303m) (Based on the trailing twelve months to September 2021).
Therefore, Hillman Solutions has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Machinery industry average of 10%.
See our latest analysis for Hillman Solutions
Above you can see how the current ROCE for Hillman Solutions 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 Hillman Solutions here for free.
So How Is Hillman Solutions' ROCE Trending?
Things have been pretty stable at Hillman Solutions, with its capital employed and returns on that capital staying somewhat the same for the last two years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Hillman Solutions in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
The Bottom Line On Hillman Solutions' ROCE
In summary, Hillman Solutions isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly then, the total return to shareholders over the last year has been flat. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
Hillman Solutions does have some risks though, and we've spotted 1 warning sign for Hillman Solutions that you might be interested in.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
