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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at MaltaPost (MTSE:MTP) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for MaltaPost, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = €3.7m ÷ (€51m - €17m) (Based on the trailing twelve months to March 2024).
Therefore, MaltaPost has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 12% generated by the Logistics industry.
See our latest analysis for MaltaPost
Historical performance is a great place to start when researching a stock so above you can see the gauge for MaltaPost's ROCE against it's prior returns. If you'd like to look at how MaltaPost has performed in the past in other metrics, you can view this free graph of MaltaPost's past earnings, revenue and cash flow.
What Does the ROCE Trend For MaltaPost Tell Us?
MaltaPost's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 23% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
Our Take On MaltaPost's ROCE
To sum it up, MaltaPost is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 9.5% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
On a final note, we found 5 warning signs for MaltaPost (2 are concerning) you should be aware of.
While MaltaPost 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.
About MTSE:MTP
MaltaPost
Provides postal and financial services in Malta and internationally.
Flawless balance sheet with solid track record.
