We Think MAHLE Metal Leve (BVMF:LEVE3) Might Have The DNA Of A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of MAHLE Metal Leve (BVMF:LEVE3) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 MAHLE Metal Leve is:

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

0.31 = R$696m ÷ (R$3.2b - R$983m) (Based on the trailing twelve months to March 2023).

Therefore, MAHLE Metal Leve has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Auto Components industry average of 7.5%.

View our latest analysis for MAHLE Metal Leve

Above you can see how the current ROCE for MAHLE Metal Leve compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering MAHLE Metal Leve here for free.

So How Is MAHLE Metal Leve's ROCE Trending?

MAHLE Metal Leve is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 31%. The amount of capital employed has increased too, by 22%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 30% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what MAHLE Metal Leve has. Since the stock has returned a staggering 173% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing MAHLE Metal Leve we've found 2 warning signs (1 is potentially serious!) that you should be aware of before investing here.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.