If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, we've noticed some promising trends at Munters Group (STO:MTRS) so let's look a bit deeper.
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. Analysts use this formula to calculate it for Munters Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = kr1.1b ÷ (kr15b - kr4.4b) (Based on the trailing twelve months to March 2023).
Thus, Munters Group has an ROCE of 10%. In absolute terms, that's a pretty standard return but compared to the Building industry average it falls behind.
See our latest analysis for Munters Group
Above you can see how the current ROCE for Munters Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
SWOT Analysis for Munters Group
- Earnings growth over the past year exceeded the industry.
- Debt is well covered by earnings.
- Dividend is low compared to the top 25% of dividend payers in the Building market.
- Expensive based on P/E ratio and estimated fair value.
- Annual earnings are forecast to grow faster than the Swedish market.
- Debt is not well covered by operating cash flow.
- Revenue is forecast to grow slower than 20% per year.
What Does the ROCE Trend For Munters Group Tell Us?
Investors would be pleased with what's happening at Munters Group. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 43% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line On Munters Group's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Munters Group has. And a remarkable 172% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Munters Group can keep these trends up, it could have a bright future ahead.
One more thing, we've spotted 1 warning sign facing Munters Group that you might find interesting.
While Munters Group 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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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 OM:MTRS
High growth potential with acceptable track record.
