Investors Should Be Encouraged By MarineMax's (NYSE:HZO) Returns On Capital

By
Simply Wall St
Published
May 17, 2022
NYSE:HZO
Source: Shutterstock

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in MarineMax's (NYSE:HZO) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for MarineMax:

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

0.29 = US$245m ÷ (US$1.2b - US$370m) (Based on the trailing twelve months to March 2022).

Thus, MarineMax has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 18%.

Check out our latest analysis for MarineMax

roce
NYSE:HZO Return on Capital Employed May 17th 2022

Above you can see how the current ROCE for MarineMax 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 MarineMax here for free.

The Trend Of ROCE

The trends we've noticed at MarineMax are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 29%. Basically the business is earning more per dollar of capital invested and in addition to that, 157% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 31%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On MarineMax's ROCE

To sum it up, MarineMax has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 129% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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