Returns At Matson (NYSE:MATX) Are On The Way Up

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Matson (NYSE:MATX) so let's look a bit deeper.

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Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Matson, this is the formula:

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

0.14 = US$561m ÷ (US$4.6b - US$560m) (Based on the trailing twelve months to December 2024).

Thus, Matson has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Shipping industry.

View our latest analysis for Matson

Above you can see how the current ROCE for Matson compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Matson .

What Can We Tell From Matson's ROCE Trend?

Matson is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 68%. So we're very much inspired by what we're seeing at Matson thanks to its ability to profitably reinvest capital.

Our Take On Matson's ROCE

All in all, it's terrific to see that Matson is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 314% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Matson does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

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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.