December 24, 2024
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Getty Images Holdings ( NYSE:GETY ), it didn't seem to tick all of these boxes.
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. To calculate this metric for Getty Images Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.092 = US$199m ÷ (US$2.6b - US$427m) (Based on the trailing twelve months to September 2024) .
Thus, Getty Images Holdings has an ROCE of 9.2%. On its own that's a low return, but compared to the average of 6.8% generated by the Interactive Media and Services industry, it's much better.
Check out our latest analysis for Getty Images Holdings
Above you can see how the current ROCE for Getty Images Holdings 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 Getty Images Holdings .
Over the past three years, Getty Images Holdings' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Getty Images Holdings doesn't end up being a multi-bagger in a few years time.
In summary, Getty Images Holdings isn't compounding its earnings but is generating stable returns on the same amount of capital employed. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 77% in the last three years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
If you want to know some of the risks facing Getty Images Holdings we've found 3 warning signs (1 is potentially serious!) that you should be aware of before investing here.
While Getty Images Holdings 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.
