If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. With that in mind, the ROCE of Marine Products (NYSE:MPX) looks attractive right now, so lets see what the trend of returns can tell us.
What is 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. Analysts use this formula to calculate it for Marine Products:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.32 = US$36m ÷ (US$133m - US$18m) (Based on the trailing twelve months to December 2021).
So, Marine Products has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 21% earned by companies in a similar industry.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Marine Products' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Marine Products, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
It's hard not to be impressed by Marine Products' returns on capital. The company has consistently earned 32% for the last five years, and the capital employed within the business has risen 61% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
The Bottom Line
Marine Products has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. In light of this, the stock has only gained 29% over the last five years for shareholders who have owned the stock in this period. So to determine if Marine Products is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
Marine Products does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.
Marine Products is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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.