Shareholders Are Optimistic That Marine Products (NYSE:MPX) Will Multiply In Value

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. So, when we ran our eye over Marine Products' (NYSE:MPX) trend of ROCE, we really liked what we saw.

What Is 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. To calculate this metric for Marine Products, this is the formula:

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

0.35 = US$57m ÷ (US$190m - US$28m) (Based on the trailing twelve months to June 2023).

Therefore, Marine Products has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

Check out our latest analysis for Marine Products

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're interested in investigating Marine Products' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We'd be pretty happy with returns on capital like Marine Products. The company has employed 91% more capital in the last five years, and the returns on that capital have remained stable at 35%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Marine Products can keep this up, we'd be very optimistic about its future.

On a side note, Marine Products has done well to reduce current liabilities to 15% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. In light of this, the stock has only gained 9.1% 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 though, and we've spotted 1 warning sign for Marine Products that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.