Is Maytronics (TLV:MTRN) Going To Multiply In Value?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, the ROCE of Maytronics (TLV:MTRN) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding 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 Maytronics is:

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

0.29 = ₪201m ÷ (₪987m - ₪290m) (Based on the trailing twelve months to September 2020).

Thus, Maytronics has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 9.9%.

See our latest analysis for Maytronics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Maytronics' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Maytronics, check out these free graphs here.

What Can We Tell From Maytronics' ROCE Trend?

Maytronics deserves to be commended in regards to it's returns. The company has consistently earned 29% for the last five years, and the capital employed within the business has risen 121% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Maytronics can keep this up, we'd be very optimistic about its future.

The Bottom Line On Maytronics' ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 648% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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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