Capital Allocation Trends At LEM Holding (VTX:LEHN) Aren't Ideal

Yahoo

24-05-2025

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at LEM Holding (VTX:LEHN), it didn't seem to tick all of these boxes.
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For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for LEM Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = CHF32m ÷ (CHF356m - CHF124m) (Based on the trailing twelve months to December 2024).
So, LEM Holding has an ROCE of 14%. By itself that's a normal return on capital and it's in line with the industry's average returns of 14%.
Check out our latest analysis for LEM Holding
Above you can see how the current ROCE for LEM Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for LEM Holding .
On the surface, the trend of ROCE at LEM Holding doesn't inspire confidence. To be more specific, ROCE has fallen from 60% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
On a related note, LEM Holding has decreased its current liabilities to 35% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
We're a bit apprehensive about LEM Holding because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Long term shareholders who've owned the stock over the last five years have experienced a 36% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.
On a final note, we found 3 warning signs for LEM Holding (1 is significant) you should be aware of.
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