Hyrican Informationssysteme: Declining ROCE and Stagnant Capital Signal a Troubling Turn

Hyrican Informationssysteme (FRA:HYI), a German provider of enterprise software solutions, has long been a stalwart in the tech sector. But beneath its stable capital structure lies a troubling reality: its return on capital employed (ROCE) has collapsed over the past five years, signaling a business in decline. Investors would be wise to heed these warning signs before it's too late.

ROCE: From Struggling to Negative, a Recipe for Disappointment
ROCE, a critical measure of a company's efficiency in deploying capital, has plummeted at Hyrican. In 2019, its ROCE stood at 4.4%, already below the tech industry average of 7.9%. By 2023, it had turned negative, hitting -1.58%, and by 2024, it limped to just 1.0%—nowhere near the industry's 11% average.
This decline isn't gradual—it's a freefall. A negative ROCE means Hyrican is losing money on its invested capital, a stark contrast to its 54% stock return over the past five years. Investors are paying a premium for a business that's increasingly incapable of generating profit from its core operations.
Stagnant Capital Employed: No Growth, No Hope
Hyrican's capital employed—total assets minus current liabilities—has remained flat for over a decade, hovering around €28–31 million. While stability might seem reassuring, it masks a deeper issue: the company isn't reinvesting in growth.
A mature business might tolerate stagnant capital, but Hyrican's ROCE collapse suggests its market is contracting or its products are becoming obsolete. With no new capital deployed to innovate or expand, Hyrican risks becoming a relic in a fast-evolving tech landscape.
The Stock Price: A Bubble Waiting to Pop?
Despite deteriorating fundamentals, HYI's stock has risen 54% over five years—a disconnect between valuation and reality. Investors may be overlooking the red flags, but the writing is on the wall:
- ROCE below the cost of capital: Hyrican's ROCE is now far below the cost of its equity and debt, eroding shareholder value.
- Negative EBIT in 2023: A €0.468 million loss highlights execution failures.
- Industry competition: Tech rivals with healthier ROCEs are likely poaching Hyrican's clients.
Two identified “warning signs” in its financials—potentially severe—add to the risks.
Time to Exit Before the Tide Turns
Hyrican Informationssysteme's story is one of a company clinging to outdated systems while its returns crumble. With no capital reinvestment to spark growth and ROCE in freefall, the path forward is bleak.
For investors, this is a sell signal. The stock's recent gains are likely a last gasp in a dying cycle. As the tech sector rewards efficiency and innovation, Hyrican's inability to meet these benchmarks makes it a prime candidate for a steep correction.
Final Verdict: Proceed with Caution
Hyrican Informationssysteme's declining ROCE and stagnant capital employed paint a clear picture: a business in decline. With no turnaround in sight, investors should reassess their positions. The clock is ticking—don't wait for the market to realize what the numbers already show.
Act now before the tide turns.
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