Malibu Boats (NASDAQ:MBUU) Looks To Prolong Its Impressive Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. 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.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Malibu Boats is:

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

0.20 = US$121m ÷ (US$730m - US$129m) (Based on the trailing twelve months to March 2021).

Therefore, Malibu Boats has an ROCE of 20%. On its own that's a fantastic return on capital, though it's the same as the Leisure industry average of 20%.

Check out 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

In terms of Malibu Boats' history of ROCE, it's quite impressive. The company has employed 261% more capital in the last five years, and the returns on that capital have remained stable at 20%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

The Bottom Line On Malibu Boats' ROCE

In short, we'd argue Malibu Boats has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 470% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Malibu Boats does have some risks though, and we've spotted 1 warning sign for Malibu Boats that you might be interested in.

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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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