Huntsman (NYSE:HUN) Could Be At Risk Of Shrinking As A Company
Huntsman (NYSE:HUN) is showing signs of decline, with a return on capital employed (ROCE) of just 1.1%, significantly below the Chemicals industry average of 9.2%. Over the past five years, Huntsman's ROCE has dropped from 2.9%, indicating a concerning trend. The company's stock has fallen 44% in the same period, reflecting investor concerns. Unless there is a positive shift in these metrics, Huntsman may not be a viable investment option. Additionally, there are two warning signs associated with the company that investors should consider.
If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. On that note, looking into Huntsman (NYSE:HUN), we weren't too upbeat about how things were going.
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Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on Huntsman is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.011 = US$62m ÷ (US$7.1b - US$1.5b) (Based on the trailing twelve months to June 2025).
So, Huntsman has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 9.2%.
Check out our latest analysis for Huntsman
In the above chart we have measured Huntsman'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 Huntsman .
So How Is Huntsman's ROCE Trending?
We are a bit worried about the trend of returns on capital at Huntsman. To be more specific, the ROCE was 2.9% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Huntsman to turn into a multi-bagger.
In Conclusion...
In summary, it's unfortunate that Huntsman is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 44% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.
Huntsman does have some risks though, and we've spotted 2 warning signs for Huntsman that you might be interested in.
While Huntsman 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.
