Return Trends At Birkenstock Holding (NYSE:BIRK) Aren't Appealing - Simply Wall St News

Nov 05, 2024

Stock Analysis

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Birkenstock Holding (NYSE:BIRK) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. Analysts use this formula to calculate it for Birkenstock Holding:

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

0.077 = €355m ÷ (€5.0b - €435m) (Based on the trailing twelve months to June 2024).

Thus, Birkenstock Holding has an ROCE of 7.7%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 12%.

Check out our latest analysis for Birkenstock Holding

In the above chart we have measured Birkenstock Holding's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Birkenstock Holding .

Over the past two years, Birkenstock Holding's ROCE and capital employed have both remained mostly flat. 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 Birkenstock Holding in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In summary, Birkenstock Holding isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 11% over the last year, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a separate note, we've found 1 warning sign for Birkenstock Holding you'll probably want to know about.

While Birkenstock Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Discover if Birkenstock Holding might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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Manufactures and sells footwear products.