KION GROUP (ETR:KGX) has to do more to multiply its value in the future

To find a multi-bagger stock, what underlying trends should we look for in a company? Ideally, a company will exhibit two trends; first, a growing to return on the capital employed (ROCE) and secondly an increasing Crowd of the capital employed. When you see this, it usually means that it is a company with a great business model and numerous profitable reinvestment opportunities. However, after a quick look at the numbers, we do not believe KION-GROUP (ETR:KGX) has the potential to be a multi-bagger in the future, but let’s take a look at why that might be the case.

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

If you have never worked with ROCE before, it measures the “return” (profit before tax) that a company generates from the capital employed in its business. To calculate this key figure for the KION GROUP, the formula is:

Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.055 = €703 million ÷ (€18 billion – €5.0 billion) (Based on the last twelve months to March 2024).

Therefore, The KION GROUP has a ROCE of 5.5 percent. In absolute terms, this is a low return and it is also below the industry average for mechanical engineering of 11%.

Check out our latest analysis for KION GROUP

In the chart above, we’ve compared KION GROUP’s past ROCE with its past performance, but the future is arguably more important. If you want to know what analysts are forecasting for the future, you should check out our free analyst report for KION GROUP.

The trend of ROCE

As for the historical development of KION GROUP’s ROCE, it is not particularly remarkable. The company has increased its capital by 36% over the last five years and the return on capital has remained stable at 5.5%. This weak ROCE does not inspire confidence at the moment and given the increase in capital employed, it is obvious that the company is not investing the funds in high-return investments.

Finally…

In summary, KION GROUP has simply reinvested capital and generated the same low return as before. And investors seem to doubt that the trends will continue, as the stock has fallen 17% over the past five years. All in all, the inherent trends are not typical of multibaggers, so if that’s what you’re looking for, we think you’ll have better luck elsewhere.

Finally, we concluded: 2 warning signs for KION GROUP (1 is worrying) You should be aware of this.

If you want to look for solid companies with high returns, check out this free List of companies with good balance sheets and impressive return on equity.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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