Be Wary Of Moncler (BIT:MONC) And Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, while the ROCE is currently high for Moncler (BIT:MONC), we aren't jumping out of our chairs because returns are decreasing.

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 Moncler is:

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

0.21 = €680m ÷ (€3.9b - €713m) (Based on the trailing twelve months to June 2022).

Therefore, Moncler has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 9.7% earned by companies in a similar industry.

Check out the opportunities and risks within the IT Luxury industry.

Above you can see how the current ROCE for Moncler 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 Moncler.

What Can We Tell From Moncler's ROCE Trend?

On the surface, the trend of ROCE at Moncler doesn't inspire confidence. Historically returns on capital were even higher at 34%, but they have dropped over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Moncler's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Moncler. And the stock has followed suit returning a meaningful 93% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Moncler could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

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.

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

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.