Investors Met With Slowing Returns on Capital At Mohawk Industries (NYSE:MHK)

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Mohawk Industries (NYSE:MHK) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Mohawk Industries is:

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

0.084 = US$871m ÷ (US$13b - US$2.9b) (Based on the trailing twelve months to June 2024).

Thus, Mohawk Industries has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 14%.

Check out our latest analysis for Mohawk Industries

Above you can see how the current ROCE for Mohawk Industries 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 Mohawk Industries for free.

So How Is Mohawk Industries' ROCE Trending?

There hasn't been much to report for Mohawk Industries' 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 Mohawk Industries to be a multi-bagger going forward.

In Conclusion...

In a nutshell, Mohawk Industries 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 28% 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.

One more thing, we've spotted 1 warning sign facing Mohawk Industries that you might find interesting.

While Mohawk Industries 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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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.