Is Malibu Boats (NASDAQ:MBUU) A Compounding Machine?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Malibu Boats' (NASDAQ:MBUU) trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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 Malibu Boats:

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

0.22 = US$95m ÷ (US$520m - US$97m) (Based on the trailing twelve months to September 2020).

Thus, Malibu Boats has an ROCE of 22%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

View our latest analysis for Malibu Boats

Above you can see how the current ROCE for Malibu Boats 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 Malibu Boats.

What The Trend Of ROCE Can Tell Us

Malibu Boats deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 22% and the business has deployed 169% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Malibu Boats can keep this up, we'd be very optimistic about its future.

What We Can Learn From Malibu Boats' ROCE

In summary, we're delighted to see that Malibu Boats has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 448% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing to note, we've identified 1 warning sign with Malibu Boats and understanding it should be part of your investment process.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. 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.
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