Metso Oyj (HEL:METSO) Has More To Do To Multiply In Value Going Forward

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So, when we ran our eye over Metso Oyj's (HEL:METSO) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Metso Oyj:

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

0.19 = €813m ÷ (€7.0b - €2.7b) (Based on the trailing twelve months to March 2024).

So, Metso Oyj has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 12% generated by the Machinery industry.

See our latest analysis for Metso Oyj

In the above chart we have measured Metso Oyj'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 Metso Oyj .

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 19% for the last five years, and the capital employed within the business has risen 137% in that time. 19% is a pretty standard return, and it provides some comfort knowing that Metso Oyj has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

To sum it up, Metso Oyj has simply been reinvesting capital steadily, at those decent rates of return. However, over the last three years, the stock has only delivered a 13% return to shareholders who held over that period. So to determine if Metso Oyj is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

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

While Metso Oyj isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.

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