If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. And in light of that, the trends we're seeing at Malibu Boats' (NASDAQ:MBUU) look very promising so lets take a look.
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. The formula for this calculation on Malibu Boats is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.33 = US$197m ÷ (US$824m - US$225m) (Based on the trailing twelve months to March 2022).
Thus, Malibu Boats has an ROCE of 33%. That's a fantastic return and not only that, it outpaces the average of 21% earned by companies in a similar industry.
Above you can see how the current ROCE for Malibu Boats 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 Malibu Boats.
What The Trend Of ROCE Can Tell Us
The trends we've noticed at Malibu Boats are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 33%. 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 218%. So we're very much inspired by what we're seeing at Malibu Boats thanks to its ability to profitably reinvest capital.
All in all, it's terrific to see that Malibu Boats is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 160% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Malibu Boats can keep these trends up, it could have a bright future ahead.
While Malibu Boats looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MBUU is currently trading for a fair price.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.
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