Stock Analysis

Slowing Rates Of Return At Moog (NYSE:MOG.A) Leave Little Room For Excitement

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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Moog (NYSE:MOG.A) and its ROCE trend, we weren't exactly thrilled.

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 Moog, this is the formula:

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

0.10 = US$263m ÷ (US$3.4b - US$838m) (Based on the trailing twelve months to October 2022).

So, Moog has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 9.1% generated by the Aerospace & Defense industry.

See our latest analysis for Moog

NYSE:MOG.A Return on Capital Employed January 30th 2023

Above you can see how the current ROCE for Moog compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Moog here for free.

What Can We Tell From Moog's ROCE Trend?

There hasn't been much to report for Moog's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Moog to be a multi-bagger going forward.

What We Can Learn From Moog's ROCE

In a nutshell, Moog has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 20% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we've found 2 warning signs for Moog that we think you should be aware of.

While Moog 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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