Investors Will Want Mueller Water Products' (NYSE:MWA) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Mueller Water Products (NYSE:MWA) looks quite promising in regards to its trends of return on capital.

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Understanding 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. The formula for this calculation on Mueller Water Products is:

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

0.17 = US$241m ÷ (US$1.7b - US$235m) (Based on the trailing twelve months to March 2025).

So, Mueller Water Products has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 11% generated by the Machinery industry.

View our latest analysis for Mueller Water Products

Above you can see how the current ROCE for Mueller Water Products 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 Mueller Water Products for free.

How Are Returns Trending?

We like the trends that we're seeing from Mueller Water Products. The data shows that returns on capital have increased substantially over the last five years to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 20% more capital is being employed now too. So we're very much inspired by what we're seeing at Mueller Water Products thanks to its ability to profitably reinvest capital.

The Bottom Line On Mueller Water Products' ROCE

All in all, it's terrific to see that Mueller Water Products is reaping the rewards from prior investments and is growing its capital base. And a remarkable 180% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for MWA that compares the share price and estimated value.

While Mueller Water Products 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.