Why The 28% Return On Capital At Vita Coco Company (NASDAQ:COCO) Should Have Your Attention
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Vita Coco Company's (NASDAQ:COCO) look very promising so lets take a look.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Vita Coco Company, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = US$57m ÷ (US$286m - US$83m) (Based on the trailing twelve months to December 2023).
So, Vita Coco Company has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Beverage industry average of 17%.
Check out our latest analysis for Vita Coco Company
In the above chart we have measured Vita Coco Company'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 analyst report for Vita Coco Company .
What The Trend Of ROCE Can Tell Us
Vita Coco Company is displaying some positive trends. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 28%. The amount of capital employed has increased too, by 95%. So we're very much inspired by what we're seeing at Vita Coco Company thanks to its ability to profitably reinvest capital.
Our Take On Vita Coco Company's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Vita Coco Company has. And with a respectable 28% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you want to continue researching Vita Coco Company, you might be interested to know about the 1 warning sign that our analysis has discovered.
Vita Coco Company 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.
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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.
