Returns On Capital At Montauk Renewables (NASDAQ:MNTK) Have Hit The Brakes

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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, the ROCE of Montauk Renewables (NASDAQ:MNTK) looks decent, 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. 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)

0.10 = US$35m ÷ (US$374m - US$39m) (Based on the trailing twelve months to September 2024).

So, Montauk Renewables has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 4.1% generated by the Renewable Energy industry.

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, you can check out the forecasts from the analysts covering Montauk Renewables for free.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 10% and the business has deployed 50% more capital into its operations. 10% is a pretty standard return, and it provides some comfort knowing that Montauk Renewables has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Montauk Renewables' ROCE

The main thing to remember is that Montauk Renewables has proven its ability to continually reinvest at respectable rates of return. Yet over the last three years the stock has declined 56%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you're still interested in Montauk Renewables it's worth checking out our FREE intrinsic value approximation for MNTK to see if it's trading at an attractive price in other respects.

While Montauk Renewables may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.