Returns on Capital Paint A Bright Future For OneWater Marine (NASDAQ:ONEW)
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at OneWater Marine's (NASDAQ:ONEW) look very promising so lets take a look.
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 OneWater Marine, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.37 = US$130m ÷ (US$633m - US$286m) (Based on the trailing twelve months to March 2021).
Therefore, OneWater Marine has an ROCE of 37%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.
View our latest analysis for OneWater Marine
In the above chart we have measured OneWater Marine's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering OneWater Marine here for free.
What Can We Tell From OneWater Marine's ROCE Trend?
The trends we've noticed at OneWater Marine are quite reassuring. The data shows that returns on capital have increased substantially over the last three years to 37%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 103%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
On a side note, OneWater Marine's current liabilities are still rather high at 45% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Key Takeaway
To sum it up, OneWater Marine has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 343% total return over the last year tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you want to continue researching OneWater Marine, you might be interested to know about the 3 warning signs that our analysis has discovered.
OneWater Marine 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.
This article by Simply Wall St is general in nature. 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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