Stock Analysis

Has Motorcar Parts of America (NASDAQ:MPAA) Got What It Takes To Become A Multi-Bagger?

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NasdaqGS:MPAA
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after investigating Motorcar Parts of America (NASDAQ:MPAA), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Motorcar Parts of America:

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

0.046 = US$22m ÷ (US$779m - US$303m) (Based on the trailing twelve months to September 2020).

Thus, Motorcar Parts of America has an ROCE of 4.6%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 10%.

Check out our latest analysis for Motorcar Parts of America

roce
NasdaqGS:MPAA Return on Capital Employed December 15th 2020

Above you can see how the current ROCE for Motorcar Parts of America 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 Motorcar Parts of America.

So How Is Motorcar Parts of America's ROCE Trending?

On the surface, the trend of ROCE at Motorcar Parts of America doesn't inspire confidence. To be more specific, ROCE has fallen from 12% over the last five years. However it looks like Motorcar Parts of America might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by Motorcar Parts of America's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 29% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you want to know some of the risks facing Motorcar Parts of America we've found 4 warning signs (1 is significant!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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What are the risks and opportunities for Motorcar Parts of America?

Motorcar Parts of America, Inc. manufactures, remanufactures, and distributes heavy-duty truck, industrial, marine, and agricultural application replacement parts.

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Rewards

  • Earnings are forecast to grow 152.26% per year

Risks

  • Interest payments are not well covered by earnings

  • Significant insider selling over the past 3 months

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