We're Watching These Trends At MAV Beauty Brands (TSE:MAV)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at MAV Beauty Brands (TSE:MAV), it didn't seem to tick all of these boxes.

What is 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 MAV Beauty Brands is:

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

0.062 = US$25m ÷ (US$424m - US$19m) (Based on the trailing twelve months to September 2020).

Therefore, MAV Beauty Brands has an ROCE of 6.2%. Even though it's in line with the industry average of 6.2%, it's still a low return by itself.

See our latest analysis for MAV Beauty Brands

Above you can see how the current ROCE for MAV Beauty Brands compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for MAV Beauty Brands.

What Does the ROCE Trend For MAV Beauty Brands Tell Us?

In terms of MAV Beauty Brands' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 6.2% for the last three years, and the capital employed within the business has risen 124% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In summary, MAV Beauty Brands has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 36% over the last year. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

MAV Beauty Brands does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

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This article by Simply Wall St is general in nature. 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.
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