Monadelphous Group (ASX:MND) Might Have The Makings Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at Monadelphous Group (ASX:MND) and its trend of ROCE, we really liked what we saw.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Monadelphous Group:

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

0.18 = AU$103m ÷ (AU$1.0b - AU$443m) (Based on the trailing twelve months to June 2025).

Therefore, Monadelphous Group has an ROCE of 18%. That's a pretty standard return and it's in line with the industry average of 18%.

Check out our latest analysis for Monadelphous Group

In the above chart we have measured Monadelphous Group'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 Monadelphous Group .

How Are Returns Trending?

The trends we've noticed at Monadelphous Group are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The amount of capital employed has increased too, by 21%. So we're very much inspired by what we're seeing at Monadelphous Group thanks to its ability to profitably reinvest capital.

On a separate but related note, it's important to know that Monadelphous Group has a current liabilities to total assets ratio of 44%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

In summary, it's great to see that Monadelphous Group can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 179% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Monadelphous Group does come with some risks, and we've found 1 warning sign that you should be aware of.

While Monadelphous Group 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.