The Trend Of High Returns At Mainfreight (NZSE:MFT) Has Us Very Interested

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Mainfreight (NZSE:MFT) we really liked what we saw.

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 Mainfreight, this is the formula:

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

0.25 = NZ$632m ÷ (NZ$3.5b - NZ$937m) (Based on the trailing twelve months to September 2022).

So, Mainfreight has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Logistics industry average of 14%.

View our latest analysis for Mainfreight

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

So How Is Mainfreight's ROCE Trending?

We like the trends that we're seeing from Mainfreight. The data shows that returns on capital have increased substantially over the last five years to 25%. The amount of capital employed has increased too, by 160%. So we're very much inspired by what we're seeing at Mainfreight thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Mainfreight can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Mainfreight looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MFT is currently trading for a fair price.

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. 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.