Did you know there are some financial metrics that can provide clues of a potential 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Mohawk Industries (NYSE:MHK) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
We've discovered 1 warning sign about Mohawk Industries. View them for free.Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Mohawk Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.08 = US$807m ÷ (US$13b - US$2.7b) (Based on the trailing twelve months to December 2024).
Therefore, Mohawk Industries has an ROCE of 8.0%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 14%.
See our latest analysis for Mohawk Industries
In the above chart we have measured Mohawk Industries' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Mohawk Industries .
What Can We Tell From Mohawk Industries' ROCE Trend?
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. So unless we see a substantial change at Mohawk Industries in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
What We Can Learn From Mohawk Industries' ROCE
We can conclude that in regards to Mohawk Industries' returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 24% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
Mohawk Industries does have some risks though, and we've spotted 1 warning sign for Mohawk Industries that you might be interested in.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.