MasterBrand (NYSE:MBC) Might Have The Makings Of A Multi-Bagger
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 looked at MasterBrand (NYSE:MBC) and its trend of ROCE, we really liked what we saw.
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. Analysts use this formula to calculate it for MasterBrand:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$317m ÷ (US$2.4b - US$368m) (Based on the trailing twelve months to September 2023).
Therefore, MasterBrand has an ROCE of 16%. By itself that's a normal return on capital and it's in line with the industry's average returns of 16%.
See our latest analysis for MasterBrand
Above you can see how the current ROCE for MasterBrand 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 MasterBrand.
How Are Returns Trending?
You'd find it hard not to be impressed with the ROCE trend at MasterBrand. The data shows that returns on capital have increased by 74% over the trailing two years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 22% less capital than it was two years ago. MasterBrand may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
What We Can Learn From MasterBrand's ROCE
In the end, MasterBrand has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a solid 86% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if MasterBrand can keep these trends up, it could have a bright future ahead.
On a separate note, we've found 2 warning signs for MasterBrand you'll probably want to know about.
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.
