Return Trends At Mainfreight (NZSE:MFT) Aren't Appealing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Mainfreight's (NZSE:MFT) ROCE trend, we were pretty happy with what we saw.

Understanding 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 Mainfreight, this is the formula:

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

0.16 = NZ$284m ÷ (NZ$2.5b - NZ$663m) (Based on the trailing twelve months to March 2021).

So, Mainfreight has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 13% generated by the Logistics industry.

See our latest analysis for Mainfreight

In the above chart we have measured Mainfreight'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 report on analyst forecasts for the company.

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 89% in that time. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

Our Take On Mainfreight's ROCE

To sum it up, Mainfreight has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 429% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to continue researching Mainfreight, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Mainfreight 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.
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