Yahoo Finance Marine Products (NYSE:MPX) Is Reinvesting To Multiply In Value
To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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.
Understanding 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 Marine Products, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.37 = US$52m ÷ (US$164m - US$24m) (Based on the trailing twelve months to December 2022).
Thus, Marine Products has an ROCE of 37%. In absolute terms that's a great return and it's even better than the Leisure industry average of 21%.
See 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 want to delve into the historical earnings, revenue and cash flow of Marine Products, check out these free graphs here.
So How Is Marine Products' ROCE Trending?
We'd be pretty happy with returns on capital like Marine Products. The company has consistently earned 37% for the last five years, and the capital employed within the business has risen 83% in that time. Now considering ROCE is an attractive 37%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.
The Bottom Line On Marine Products' ROCE
In summary, we're delighted to see that Marine Products has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. However, over the last five years, the stock has only delivered a 9.8% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.
On a final note, we've found 1 warning sign for Marine Products that we think you should be aware of.
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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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.
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