Marel hf (ICE:MAREL) Hasn't Managed To Accelerate Its Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, the ROCE of Marel hf (ICE:MAREL) looks decent, right now, so lets see what the trend of returns can tell us.

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. To calculate this metric for Marel hf, this is the formula:

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

0.12 = €159m ÷ (€1.9b - €546m) (Based on the trailing twelve months to March 2021).

Thus, Marel hf has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.8% generated by the Machinery industry.

View our latest analysis for Marel hf

Above you can see how the current ROCE for Marel hf 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 Marel hf here for free.

What Can We Tell From Marel hf's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 28% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that Marel hf has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

In the end, Marel hf has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 275% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you're still interested in Marel hf it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Marel hf 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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