Advertisement
New Zealand markets closed
  • NZX 50

    11,767.40
    +68.89 (+0.59%)
     
  • NZD/USD

    0.6121
    -0.0010 (-0.17%)
     
  • NZD/EUR

    0.5708
    +0.0002 (+0.03%)
     
  • ALL ORDS

    8,006.30
    +62.70 (+0.79%)
     
  • ASX 200

    7,768.70
    +68.40 (+0.89%)
     
  • OIL

    80.18
    -0.15 (-0.19%)
     
  • GOLD

    2,335.30
    +6.30 (+0.27%)
     
  • NASDAQ

    19,902.75
    +242.95 (+1.24%)
     
  • FTSE

    8,142.15
    -4.71 (-0.06%)
     
  • Dow Jones

    38,778.10
    +188.94 (+0.49%)
     
  • DAX

    18,068.21
    +66.19 (+0.37%)
     
  • Hang Seng

    17,888.62
    -47.50 (-0.26%)
     
  • NIKKEI 225

    38,391.80
    +289.36 (+0.76%)
     
  • NZD/JPY

    96.5690
    -0.0800 (-0.08%)
     

Shareholders Are Optimistic That Meta Platforms (NASDAQ:META) Will Multiply In Value

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. With that in mind, the ROCE of Meta Platforms (NASDAQ:META) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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 Meta Platforms, this is the formula:

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

0.29 = US$56b ÷ (US$223b - US$28b) (Based on the trailing twelve months to March 2024).

ADVERTISEMENT

So, Meta Platforms has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Interactive Media and Services industry average of 6.4%.

View our latest analysis for Meta Platforms

roce
roce

Above you can see how the current ROCE for Meta Platforms 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 Meta Platforms .

What Can We Tell From Meta Platforms' ROCE Trend?

We'd be pretty happy with returns on capital like Meta Platforms. The company has consistently earned 29% for the last five years, and the capital employed within the business has risen 96% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Key Takeaway

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has done incredibly well with a 159% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Like most companies, Meta Platforms does come with some risks, and we've found 1 warning sign that you should be aware of.

Meta Platforms is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.