Shareholders Are Optimistic That Monster Beverage (NASDAQ:MNST) Will Multiply In Value
There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Ergo, when we looked at the ROCE trends at Monster Beverage (NASDAQ:MNST), we liked what we saw.
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. To calculate this metric for Monster Beverage, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.25 = US$1.8b ÷ (US$8.2b - US$1.0b) (Based on the trailing twelve months to March 2022).
Thus, Monster Beverage has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Beverage industry average of 13%.
See our latest analysis for Monster Beverage
In the above chart we have measured Monster Beverage's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Monster Beverage.
What The Trend Of ROCE Can Tell Us
It's hard not to be impressed by Monster Beverage's returns on capital. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 84% 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 Bottom Line On Monster Beverage's ROCE
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 followed suit returning a meaningful 85% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
While Monster Beverage looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MNST is currently trading for a fair price.
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.
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.
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