Here's What's Concerning About Malibu Boats' (NASDAQ:MBUU) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Although, when we looked at Malibu Boats (NASDAQ:MBUU), it didn't seem to tick all of these boxes.

Understanding 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. The formula for this calculation on Malibu Boats is:

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

0.074 = US$44m ÷ (US$740m - US$139m) (Based on the trailing twelve months to June 2024).

So, Malibu Boats has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Leisure industry average of 13%.

Check out our latest analysis for Malibu Boats

In the above chart we have measured Malibu Boats' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Malibu Boats .

How Are Returns Trending?

On the surface, the trend of ROCE at Malibu Boats doesn't inspire confidence. Around five years ago the returns on capital were 29%, but since then they've fallen to 7.4%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Key Takeaway

We're a bit apprehensive about Malibu Boats because despite more capital being deployed in the business, returns on that capital and sales have both fallen. In spite of that, the stock has delivered a 29% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Malibu Boats could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for MBUU on our platform quite valuable.

While Malibu Boats 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.