What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Methode Electronics (NYSE:MEI), it didn't seem to tick all of these boxes.
What Is Return On Capital Employed (ROCE)?
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 Methode Electronics:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.021 = US$27m ÷ (US$1.5b - US$230m) (Based on the trailing twelve months to January 2024).
Thus, Methode Electronics has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Electronic industry average of 11%.
Above you can see how the current ROCE for Methode Electronics 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 analyst report for Methode Electronics .
The Trend Of ROCE
When we looked at the ROCE trend at Methode Electronics, we didn't gain much confidence. To be more specific, ROCE has fallen from 12% over the last five years. However it looks like Methode Electronics might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
In Conclusion...
In summary, Methode Electronics is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 56% in the last five years. Therefore based on the analysis done in this article, we don't think Methode Electronics has the makings of a multi-bagger.
If you want to know some of the risks facing Methode Electronics we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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.
長期にわたって価値が増える株を特定するには、どのようなトレンドに注目すべきでしょうか?通常、増加傾向にある資本のトレンドに注目したいと思います。つまり、これらのビジネスタイプは複利計算機械であり、利益を連続的に再投資して、より高い利回りで成長を続けています。それはと言って、McCormick(NYSE:MKC)について第一印象で収益のトレンドを見ても、どのように増加しているかにはあまり張り付いていませんが、もう少し詳しく見てみましょう。資本利回り (ROCE)とは何ですか?わからない方には、ROCEは企業が事業に使用する資本から、税引き前利益をどれだけ生成できるかを測定します。アナリストは以下の式を使用して、Bumi Armada BerhadのROCEを計算します。「ROCE = 利息や税金を除いた利益 (EBIT) ÷ (総資産 - 流動負債)」。増え続ける売上高(revenue)はROCEのトレンドの中にあります。このように見ると、優れたビジネスモデルと豊富な収益性の高い再投資機会を持つ企業であることを示しています。しかし、Clearway Energy(NYSE:CWEN.A)を調査した結果、現在のトレンドが多倍化の形に合致していないと判断されました。NYSE:HD Return on Capital Employed 2024年4月10日資本雇用の準備率。 つまり、会社は継続して再投資できる収益性の高いイニシアチブを持っており、バッグマシンの特徴です。ただし、Methode Electronics(NYSE:MEI)を見たとき、これらすべてのボックスにチェックされたようには見えませんでした。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。