If you’re looking for a multi-bagger, there are a few things to keep in mind. A common approach is to try to find company with Return on capital employed (ROCE) that are increasing, in conjunction with an increasing Amount of capital employed. This basically means that a company has profitable initiatives in which it can continue to reinvest, which is a characteristic of a compounding machine. so when we saw MasTech (NYSE:MTZ) and its trend of ROCE, we really liked what we saw.
Return on Capital Employed (ROCE): What is it?
For those who don’t know, ROCE is a measure of a company’s annual profit before tax (its return) relative to the capital employed in the business. The formula for this calculation on MasTec is:
Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) (Total Assets – Current Liabilities)
0.11 = US$481m (US$6.0b – US$1.7b) (Based on the following twelve months to September 2021),
Thus, MasTec’s ROCE is 11%. In itself, this is a standard return, although it is much better than the 8.5% generated by the construction industry.
Check out our latest analysis for Mastek
Above you can see how the current ROCE for MasTec compares to its prior return on capital, but there’s only so much you can tell from the past. If you want to see what analysts are forecasting next, you should check out our free Report for MasTech.
ROCE. trend of
Investors will be happy with what’s happening at MasTec. In the last five years, the return on capital employed has grown substantially to 11%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has also increased by 90%. So we’re very driven by what we’re seeing at MasTec, thanks in part to its ability to reinvest capital profitably.
Our View on Mastek’s ROCE
Overall, it is great to see that MasTech is benefiting from past investments and growing its capital base. And as the stock has performed exceptionally well over the past five years, these patterns are being accounted for by investors. That being said, we still think promising fundamentals mean the company deserves some more due diligence.
Like most companies, MasTec comes with some risks, and we’ve found 1 warning sign Which you should be aware of.
Although MasTech may not currently earn the highest returns, we have compiled a list of companies that currently earn more than 25% return on equity. check it out free List here.
Feedback on this article? Worried about the content? keep in touch directly with us. Alternatively, email the editorial-team (at) simplewallst.com.
This article by Simple Wall St. is general in nature. We only provide commentary based on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to be financial advice. It does not recommend buying or selling any stock, and does not take into account your objectives, or your financial situation. We aim to bring you long-term focused analytics powered by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative content. Simple Wall St does not have a position in any of the stocks mentioned.