Macquarie Technology Group (ASX:MAQ) Has More To Do To Multiply In Value Going Forward

Explore Macquarie Technology Group's Fair Values from the Community and select yours

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Macquarie Technology Group (ASX:MAQ) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Macquarie Technology Group is:

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

0.091 = AU$56m ÷ (AU$709m - AU$94m) (Based on the trailing twelve months to December 2024).

Therefore, Macquarie Technology Group has an ROCE of 9.1%. On its own that's a low return, but compared to the average of 5.7% generated by the IT industry, it's much better.

View our latest analysis for Macquarie Technology Group

In the above chart we have measured Macquarie Technology Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Macquarie Technology Group .

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Macquarie Technology Group in recent years. Over the past five years, ROCE has remained relatively flat at around 9.1% and the business has deployed 199% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

Long story short, while Macquarie Technology Group has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 49% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Macquarie Technology Group does have some risks though, and we've spotted 2 warning signs for Macquarie Technology Group that you might be interested in.

While Macquarie Technology 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.

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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.