Returns Are Gaining Momentum At Mistras Group (NYSE:MG)
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Speaking of which, we noticed some great changes in Mistras Group's (NYSE:MG) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Mistras Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.06 = US$25m ÷ (US$535m - US$117m) (Based on the trailing twelve months to December 2023).
Therefore, Mistras Group has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 13%.
Check out our latest analysis for Mistras Group
In the above chart we have measured Mistras Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Mistras Group .
What Can We Tell From Mistras Group's ROCE Trend?
You'd find it hard not to be impressed with the ROCE trend at Mistras Group. We found that the returns on capital employed over the last five years have risen by 33%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Mistras Group appears to been achieving more with less, since the business is using 30% less capital to run its operation. Mistras Group 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 Mistras Group's ROCE
In summary, it's great to see that Mistras Group has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 33% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.
If you want to know some of the risks facing Mistras Group we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.
While Mistras Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
