Montauk Renewables (NASDAQ:MNTK) Has More To Do To Multiply In Value Going Forward

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Montauk Renewables (NASDAQ:MNTK), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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 Montauk Renewables, this is the formula:

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

0.09 = US$28m ÷ (US$346m - US$30m) (Based on the trailing twelve months to September 2023).

Thus, Montauk Renewables has an ROCE of 9.0%. On its own that's a low return, but compared to the average of 3.2% generated by the Renewable Energy industry, it's much better.

Check out our latest analysis for Montauk Renewables

Above you can see how the current ROCE for Montauk Renewables compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Montauk Renewables.

What Does the ROCE Trend For Montauk Renewables Tell Us?

In terms of Montauk Renewables' historical ROCE trend, it doesn't exactly demand attention. Over the past four years, ROCE has remained relatively flat at around 9.0% and the business has deployed 41% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In summary, Montauk Renewables has simply been reinvesting capital and generating the same low rate of return as before. And in the last three years, the stock has given away 56% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you want to continue researching Montauk Renewables, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.